Chip, Broadcom follows Nvidia and targets the trillion club

Ever since generative artificial intelligence entered the dimanics of Wall Street, stocks related to this innovation have been driven upwards. The best-known cases are those of Nvidia and Microsoft, but not infrequently, even smaller listed companies have experienced days of great market excitement. In some cases, it was enough to have the magic word 'Ai' in the ticker to be protagonists of big rallies.

We were talking about Nvidia. We have repeatedly recounted how Jensen Huang's company was ahead of everyone - also somewhat fortuitously - on the front of chips that run artificial intelligence algorithms such as ChatGPT. A condition of initial technological monopoly that allowed Nvidia to climb Wall Street, becoming the third company by market capitalisation (behind Apple and Microsoft), with a market cap of almost 3 trillion dollars. An unthinkable value, just 18 months ago, when Nvidia - then known for its Gpu dedicated to PCs and gaming consoles - was worth around 300 billion.

But if Nvidia's ascent is well known, the question in recent months among investors and analysts has always been one: who will be next? Now the market seems to have a name ready: Broadcom, which has gained 25% in the last five days and now, with a market cap of over 800 billion dollars, is a candidate to join the prestigious club of the trillion dollar companies.

Before delving into this rally, it is perhaps necessary to take a step back. And find out who Broadcom is and what it does. Let's start by saying that we are looking at one of the longest-lived companies in Silicon Valley. Broadcom was founded in 1961, as HP Asscociates: a rib of Hewlett-Packard dedicated to semiconductors. It would become Broadcom many years later, but it has always been one of the leading global companies in the production of semiconductors and components for network infrastructures, lately with a strong focus on artificial intelligence.

Broadcom announced a 10-for-1 stock split a few days ago. But stock splits do not change a company's fundamentals, such as its earnings, revenue growth or intrinsic value. And that is why tracing the boom of the last week to the split seems a rather gross mistake. Broadcom's stock is up for a number of factors.The first is certainly that which links the company's business to artificial intelligence. Broadcom has two broad categories of 'Ai' products: network products, such as Ethernet-based switching chips, and custom Asic chips, which cloud companies are using to build their own custom AI accelerators. With its custom Asics, Broadcom has attracted orders from Alphabet and Meta Platforms, but also from ByteDance (the parent company of Tik Tok). Broadcom's overall 'networking' category, which includes these two product lines, grew by 44% last quarter, now accounting for just over half of the company's semiconductor revenues, at 53%.