This chip stock won a big Google contract, carves niche in AI

This likely winner of a big chip contract from Google could see shares rally another 20% from here, according to JPMorgan.

Analyst Harlan Sur speculates that Broadcom recently won a contract with Alphabet for its next-gen AI application-specific integrated circuit, or ASIC, accelerator chips, which he expects to ramp up by 2026 or 2027.

“Just as importantly, we believe that Broadcom’s custom chip (ASIC) business continues to see accelerating orders from Google for its advanced AI processor chip called TPU, and we believe that the Google TPU program will drive $8B+ in revenues to Broadcom this year ... up 125% Y/Y, and more than $10B next year,” he wrote.

Sur also noted that this is the seventh iteration of AI processor chips the company would make for Alphabet.

Broadcom shares have rallied 25% this year, with Sur’s $1,700 target implying 20% upside from Wednesday’s close. The company supplies chip designs to a host of popular technology names, including Microsoft, Apple and Meta Platforms. Sur said Broadcom is the second biggest AI semiconductor supplier after Nvidia and the market share leader in cutting-edge customer chip design.

Shares this year

Looking ahead, Sur expects Broadcom to benefit from its partnership with Meta Platforms as it readies to launch its third generation of accelerator chips later this year. Combined, these projects could yield $11 billion to $12 billion in AI revenue in 2024 and $14 billion to $15 billion in revenue next year.

“The company should be a strong beneficiary of the trends toward more custom chip designs as large cloud titans/[original equipment manufacturers] look to drive more performance, power, and cost differentiation alongside their software frameworks,” he wrote.

cnbc