It pays to own a slice of the artificial-intelligence chip market in 2025. Just ask Broadcom.
Analysts at Macquarie Equity Research initiated coverage of Broadcom with an Outperform rating and a $420 price target in a research note Monday. The California-based chip maker holds a near-monopoly in the fast-growing application-specific integrated circuit, or ASIC, market, and that dominance is set to pay off.
Broadcom stock has risen 1.4% to $365.05 on Monday. It has climbed 57% this year and 123% over the last 12 months.
Nvidia's graphics processing units, or GPUs, have so far been the chip of choice for AI computing. But the demand for more efficient and customizable ASIC chips is set to grow rapidly in the years ahead, as more companies move from training AI models to running specific workloads, Macquarie argued.
"While ASIC requires longer design cycles and significant up-front investment, they offer unmatched performance per watt, system-level efficiency, and tighter integration across the compute rack," analysts Arthur Lai and Paul Golding wrote.
The firm projects the ASIC market to grow to over $80 billion by 2028 from less than $11 billion in 2024. That's good news for Broadcom, which has roughly three-quarters of the market.
"While smaller entrants such as MediaTek are beginning to emerge, we see Broadcom's scale, track record, and customer relationships as key differentiators that should allow it to defend market leadership," Lai and Golding wrote.
The company's move into software gives it additional upside, Macquarie argued. Broadcom's acquisition of VMware in 2023 means infrastructure software now accounts for roughly 50% of its per-share earnings, with gross margins reaching 93% in the segment. Non-AI businesses like smartphone components, industrial chips, and broadband infrastructure also look set for a turnaround, the firm said.
Longtime Broadcom followers will be familiar with these arguments. Earlier this year, HSBC analyst Frank Lee upgraded the stock to Buy from Hold and lifted his price target to $400 from $240, again citing ASIC growth.
"We believe that hyperscaler capex [capital expenditures] will drive ASIC growth as almost all big hyperscalers look to invest in their custom silicon program," Lee wrote.
Wall Street broadly is bullish on the company, particularly after management revealed a new customer on an earnings call earlier this month. The Wall Street Journal reported that OpenAI made the $10 billion order.
Of the 49 analysts polled by FactSet, 45 rate Broadcom stock a Buy or equivalent and 4 rate it a Hold, with a growing share of firms assigning target prices over $400.