Shares of Broadcom (NASDAQ:AVGO | AVGO Price Prediction) have been spiking alongside the rest of the market in recent weeks, and with new highs and a breakout in sight, questions linger as to whether it’s time to get back into the custom silicon titan, as the benefits of in-housing AI chip designs become clearer with time. Undoubtedly, there’s an inference boom on the horizon and, with that, the potential for significant efficiency gains.
With Broadcom recently inking new supply deals with Google, whose parent company is Alphabet (NASDAQ:GOOG), and Anthropic, while recently expanding its partnership with Meta Platforms (NASDAQ:META) through 2029, it’s becoming more apparent what’s on the line as firms look to reduce their dependency on Nvidia (NASDAQ:NVDA) or any other third party, especially as AI demand continues rocketing higher.
Amid the latest flurry of deals, I do think that the willingness to spend heavily to regain power and wane off Nvidia at a time when the GPU juggernaut may still not have enough new AI chips to go around.
The collaborative AI projects just keep coming, and they’re getting more ambitious
Whether it’s the latest votes of confidence from Broadcom’s peers in the mega-cap tech space or Anthropic, which has single-handedly applied considerable pressure to the software scene in recent months, I do think it’s clear that there might be no stopping the continued ascent of the XPU. Up ahead, I think the three-way collab with Google and Anthropic is most exciting.
In essence, Google is bringing its TPUs (Tensor Processing Units) to the table while Broadcom is stepping in with its infrastructure expertise to provide the massive 3.5 gigawatts (GW) worth of compute for Anthropic’s incredible Claude models. That’s an incredibly ambitious project, to say the least, but with three of the biggest forces in big tech backing it, I’d argue that such a project is bound to be a tremendous success.
The big deal to provide Anthropic with next-level AI compute isn’t going to be the last, either. At the end of the day, Broadcom stands out as the titan that’s working hard behind the scenes to make such projects a reality. Though time will tell how many other model makers at the frontier are going to kick off more gigawatt-scale projects, I do think that there’s a massive runway, especially as investors become a bit more trusting that big AI capital expenditures are far more than just a crapshoot.
Does Broadcom stock have what it takes to break out?
Arguably, Broadcom stock has already begun to break out, with shares up more than 22% in a month. But whether or not new highs can be reached remains the multi-trillion-dollar question. There’s no question that the recent waves of AI deals have given a lift to the stock, and while the valuation is starting to get up there, the bullish analysts on Wall Street don’t seem willing to back down.
Indeed, the path of least resistance certainly does seem higher. But, of course, there are some that think shares are starting to get a tad stretched. Seaport Research Partners’ Jay Goldberg thinks the big Anthropic project is going to cost Broadcom a fairly sizeable bill. He’s not wrong. But as to whether the downgrade is warranted, though, is the big question.
As fun and exciting as Anthropic’s big build is, it might not take all too long before investors step back, take profits, and ask questions about who’s going to have to spend the most on such a pursuit and the risks associated. If this is a massive supercycle (and Anthropic has certainly impressed us all with Mythos this month), I think the funding concern might be a bit overblown, especially since investors are now plowing money back into the AI plays.
Could Broadcom be in for a bit of a margin hit and cash flow pressures at some point down the line?
Sure, but if you’re a believer in the AI revolution and Claude’s elevated compute needs, I think the deal might be the catalyst the stock needs to keep going strong. Personally, I think Broadcom stock remains one of the best AI plays on the market if you can handle any CapEx-driven volatility.
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