Apple Taps Broadcom for Custom AI Server Chips

Two years into the AI boom, the momentum shows no signs of slowing as the technology becomes increasingly integrated into our everyday lives. Recent reports from The Information reveal that Apple (AAPL) is taking a significant step in the AI race by developing its first server processor specifically tailored for artificial intelligence applications. The tech giant is collaborating with Broadcom (AVGO) to integrate advanced networking components essential for AI functionality.Shares in both companies are higher on the day following this news, with Broadcom gaining more than 5% and Apple up 0.75% and making new record highs.This partnership underscores Apple's growing ambitions in artificial intelligence, as the company continues to expand its AI capabilities across its ecosystem. This development highlights the growing demand for specialized AI chips, creating opportunities for semiconductor companies beyond Nvidia (NVDA) to offer complementary computing solutions. Broadcom’s move mirrors Marvell’s (MRVL) recent five-year agreement to design custom AI chips for Amazon (AMZN), highlighting the intensifying competition to meet the surging need for tailored AI hardware.Both Apple and Broadcom have delivered market-beating performance this year and over the past five years. Broadcom is set to report earnings on Thursday, December 12, after the market close, and investors will be looking closely for any further insights into this exciting development.Image Source: Zacks Investment ResearchThe Rise of Custom AI Chip DevelopmentThe AI boom has accelerated demand for custom-designed chips tailored to the specific needs of artificial intelligence workloads. Semiconductor leaders like Marvell and Broadcom are carving out significant roles in this evolving ecosystem, complementing industry giant Nvidia with specialized solutions.Marvell's recent success underscores the growing importance of custom AI silicon. With data center revenue up 98% year-over-year and strong demand for its ASIC chips designed for cloud and enterprise applications, the company is rapidly establishing itself as a vital partner in the AI infrastructure space. Its five-year agreement with Amazon to design custom AI chips further highlights the increasing reliance on these purpose-built technologies.Similarly, Apple’s collaboration with Broadcom to develop AI server chips reflects the broader shift toward integrating tailored hardware into cutting-edge AI systems. These custom solutions not only optimize computing efficiency but also reduce dependence on Nvidia's GPUs, enabling tech giants to meet the ever-growing requirements of AI-powered applications.As competition heats up, the custom AI chip market may become a cornerstone in the semiconductor industry.Broadcom Earnings EstimatesBroadcom current has a Zacks Rank #3 (Hold) rating, reflecting a flat earnings revision trend. However, growth estimates remain very robust for the semiconductor company, with sales projected to climb 44% this year and 16.6% next year. And with the new development in these custom AI chips, there could be room to the upside for these forecasts.Profits are expected to grow nicely as well, with earnings projected to jump 14.2% this year, 26.7% next year and 16.5% annually over the next three to five years. Sales and earnings for the current quarter have high projections, so it will be critical to see if AVGO can meet them. The Zacks Earnings ESP is projecting a 0.84% earnings beat on Thursday.Image Source: Zacks Investment ResearchAVGO Shares Trade at a Historical PremiumAs of today, Broadcom shares are trading at a one year forward earnings multiple of 33.4x, which is above the market average and well above its 10-year median of 17x. However, with the developments in the AI industry, its high growth rate and the increasingly important role AVGO plays in that ecosystem, the company may be rerating at a deservedly higher multiple.Image Source: Zacks Investment ResearchShould Investors Buy Stock in AVGO Ahead of Earnings?Broadcom has emerged as a pivotal player in the rapidly growing AI and semiconductor sectors, and its collaboration with Apple to develop custom AI server chips underscores its role in shaping the future of AI infrastructure. This partnership, along with Broadcom's robust growth estimates, provides a compelling narrative for the stock ahead of its December 12 earnings release.However, earnings reports can easily go either way even if the results are extremely good. Based on the binary nature of earnings it is hard to say buying stock ahead of the event is a prudent decision. For investors who may want to buy shares in AVGO, it may be better to wait for the results to come out first to measure whether the growth thesis remains intact. If the growth and AI narrative appear to be robust, Broadcom should be a fantastic stock to own in the coming months and years.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Apple Inc. (AAPL): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Marvell Technology, Inc. (MRVL): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks