Broadcom Up 4%, Leads Intel, AMD in AI Chip Surge

Key Takeaway

• Broadcom (AVGO) outperforms Intel and AMD with a 4% stock rise, benefiting from the AI chip demand surge despite AI being only a fifth of its business.
• Nvidia dominates the AI chip market with an 80% share, highlighting the sector's shift towards high-performance computing.
• Investment strategies focusing on companies supporting or benefiting from AI, like Eaton and Super Micro Computer, offer alternative avenues for capitalizing on the AI boom.

Semiconductor Sector Dynamics

The semiconductor industry is experiencing a mixed performance, with significant disparities among companies. Intel and AMD have seen their shares decline by 17% and 18%, respectively, over the past month. In contrast, Broadcom (AVGO) has seen its stock rise by about 4%, showcasing resilience amidst the broader sector's challenges. The iShares Semiconductor ETF also experienced a downturn, dropping approximately 4%. This divergence in performance is largely attributed to the varying business mixes of these companies, particularly their involvement in the burgeoning artificial intelligence (AI) chip market.

Taiwan Semiconductor Manufacturing (TSMC), a leading chipmaker, reported first-quarter results that slightly exceeded expectations, with sales guidance for the second quarter also surpassing Wall Street forecasts. However, TSMC's stock fell by 4% in midday trading, reflecting concerns over the demand for non-AI chips. The company noted a sequential revenue decrease of 5.3%, impacted by smartphone seasonality but partially offset by high-performance computing-related demand.

AI Chip Demand Surge

The demand for AI chips is experiencing a significant boom, contrasting with the slowing demand for smartphone chips. Nvidia, with an estimated 80% market share in the AI chip sector for high-performance computing, stands out as a beneficiary of this trend. Its business is heavily reliant on AI chips, unlike Intel and AMD, where AI chip sales constitute a smaller portion of their revenue. This disparity underscores the competitive advantage of companies heavily invested in AI technologies.

Broadcom, despite AI constituting only about a fifth of its business, managed to outperform its peers. Its fiscal first-quarter results, reported in early March, exceeded expectations, and the company maintained its fiscal year 2024 sales guidance at $50 billion. Broadcom's valuation, trading at approximately 27 times estimated 2024 earnings, compared to the PHLX Semiconductor Index's 30 times multiple, may also play a role in its relative stock performance.

Analyst Perspectives and Investment Strategies

Recent analyst calls highlight the varied outlooks on companies within the semiconductor and broader technology sectors. Barclays reiterated Tesla as equal weight but lowered its price target, reflecting anticipated challenges. Mizuho initiated Royal Caribbean as a buy, citing its differentiated offerings. Citi upgraded Hancock Whitney to buy from neutral, pointing to undervaluation. These calls reflect the ongoing reassessment of companies' positions in light of current market dynamics.

Ocean Park Investments, led by Chief Investment Officer J. Dennis Jean-Jacques, exemplifies a strategic approach to capitalizing on the AI boom without directly competing with chip giants. By identifying companies like Eaton, Vertiv, and Super Micro Computer, which support or benefit from the AI industry's growth, Ocean Park has achieved notable investment success. This strategy underscores the potential for investors to find value in sectors adjacent to core AI technologies.