Broadcom Inc. (AVGO) saw its stock climb 2% on Monday following a bullish note from Morgan Stanley, which reiterated its overweight rating on the semiconductor firm. The brokerage highlighted Broadcom and Nvidia as top picks for investors seeking exposure to the artificial intelligence infrastructure buildout, citing an attractive risk-reward profile within its coverage universe.
Morgan Stanley noted that while memory-related opportunities are improving, the current cycle remains unusual due to its reliance on data center strength. The firm cautioned that mixed signals elsewhere could be misleading but emphasized that Broadcom and Nvidia offer the best risk-reward balance among semiconductor stocks. "Memory isn't the best risk reward in our coverage – which we think is NVDA/AVGO – but it's catching up fast," analysts wrote.
Google TPU Concerns Dismissed
In a separate research note, Morgan Stanley addressed worries that MediaTek could erode Broadcom's role in supplying Google's tensor processing units (TPUs). Analyst Joseph Moore argued that Broadcom is likely to retain roughly 80% of Google's TPU business over time, dismissing projections of a major market share loss as premature. The brokerage stated that "MediaTek participation is real, but not disruptive," drawing parallels to past concerns about Marvell and Alchip's involvement in Amazon's Trainium chip program.
While acknowledging MediaTek's credible opportunity due to Google's focus on cost efficiency and supplier diversification, Morgan Stanley noted that achieving significant cost savings may be challenging. The firm pointed to Broadcom's existing high-bandwidth memory supply agreements and highlighted execution risks tied to MediaTek's packaging approach. According to Morgan Stanley's Taiwan semiconductor team, MediaTek is expected to rely on CoWoS packaging capacity for 2-nanometer TPU production, while EMIB packaging technology remains largely unproven at Google's required scale.
AI Revenue Forecast: $120 Billion by 2027
Morgan Stanley estimated that Broadcom could generate approximately $120 billion in AI revenue in fiscal 2027, with TPU-related revenue contributing around $80 billion. However, the firm expects TPU's share of Broadcom's AI business to decline to roughly 60% over time as additional application-specific integrated circuit (ASIC) customers scale their deployments. This outlook underscores Broadcom's expanding role in the AI ecosystem beyond its Google partnership.
Apple Partnership Provides Long-Term Visibility
Broadcom's AI growth prospects are complemented by its strengthened relationship with Apple. Earlier this month, the company extended its long-standing partnership with Apple through 2031 under a new multi-year agreement that expands collaboration on custom silicon products. The deal provides Broadcom with greater long-term revenue visibility from one of its most important customers, which analysts estimate accounts for approximately 20% of Broadcom's annual revenue.
Broadcom has supplied Apple with critical wireless and networking components for years, including radio frequency chips for cellular connectivity, as well as Wi-Fi and Bluetooth chips used across Apple's device ecosystem. Although Apple has increasingly developed chips internally, including its C1 modem, the company continues to rely on Broadcom for several key wireless and radio-frequency technologies. The renewed agreement builds on a multibillion-dollar partnership announced in 2023, under which Broadcom agreed to develop and manufacture 5G radio frequency components for Apple.
The broader chip sector has shown resilience, with the Dow gaining 140 points as chip stocks rebounded ahead of Big Tech earnings. Meanwhile, Apple recently reclaimed the title of world's most valuable company from Nvidia, reflecting shifting investor sentiment in the AI space.
This article is for informational purposes only and does not constitute financial advice.
