Nvidia's Expansion into Custom AI Chips Poses Threat to Broadcom and Marvell

Nvidia Corp's considerable step into the realm of custom AI chip design is poised to disrupt the landscape for existing industry giants Broadcom Inc and Marvell Technology, Inc. These companies currently hold influential positions in the market for custom silicon solutions, which is seeing Nvidia make a strategic play.

Market Dynamics Change with Nvidia's Entry

Nvidia is ramping up its efforts by initiating a new business division focused on creating specialized chips catering to cloud computing and advanced AI tasks. With Nvidia's preeminent status in the AI chip sector, their move into this expanding market could shake things up for competitors.

Nvidia controls an estimated 80% of the market for premium AI chips. This dominance is illustrated by a substantial 40% increase in Nvidia's market value this year to a staggering $1.73 trillion. With such figures, competitors Broadcom and Marvell have seen their stocks dip on these developments.

The Shift Towards In-House Custom Chip Design

The tech industry, including behemoths like OpenAI, Microsoft Corp, Alphabet Inc, and Meta Platforms Inc, has been gradually gravitating towards creating their own chips, pushing for more energy-efficient and cost-friendly alternatives to general-purpose offerings like Nvidia's H100 and A100 chips.

This strategy, while indicative of the sector's evolving needs, potentially endangers Broadcom and Marvell's market share in custom silicon, especially within data center applications, a sector valued at about $30 billion as of 2023.

Broadcom and Marvell's Current Market Standing

Broadcom's custom silicon business alone generates approximately $10 billion. In its recent fourth-quarter financial report, Broadcom proclaimed an earnings per share (EPS) of $11.06, surpassing the expected $10.98, and reported sales of $9.29 billion, slightly under the anticipated $9.41 billion. Despite mixed outcomes, Wall Street analysts have raised their price targets on the stock post-results.

Moreover, analysts reaffirm Broadcom's role as a leader in technological infrastructure, with solid footing in AI, cloud, and software sectors, leading to a significant 110% stock increase last year.

For Marvell, the third-quarter results reported an adjusted EPS of $0.41, slightly ahead of the consensus estimate of $0.40, and a revenue of $1.419 billion, exceeding expectations and marking an 8% decrease year-over-year. The company's stock surged 51% since the previous year.

Stock Performance

As for the immediate reaction in the stock market, Broadcom's shares saw a marginal decrease of 0.15%, while Marvell's shares dropped more significantly by 2.75%.

Investors and market watchers are advised to conduct their own research as this information serves only as market analysis and does not constitute investment advice.

Nvidia, Broadcom, Marvell