Morgan Stanley defends Broadcom as core AI winner amid MediaTek competition fears over Google TPU share

Morgan Stanley runs to Broadcom's defense as investors worry about competition

Worries over rising competition have put pressure on Broadcom , but Morgan Stanley has come to the chipmaker's defense, calling it "a core AI winner" second only to Nvidia. In a note to clients on Tuesday, analysts at Morgan Stanley said concerns that Taiwan-based semiconductor company MediaTek could significantly steal Broadcom's share of Google's tensor processing unit (TPU) business are overblown. The Information reported in March that MediaTek was working with Alphabet to develop the next version of its custom chips. "Our view is that MediaTek participation is real, but not disruptive," wrote the analysts, who reiterated a buy-equivalent rating on Broadcom's stock with a $502 price target. To be sure, analysts noted that Alphabet is incentivized to reduce its reliance on Broadcom (or any one chip provider) to lower costs and gain "supplier optionality" as it produces multiple TPU generations. But Broadcom's relationship with Google appears to be just fine. In April, Broadcom announced an expanded chip agreement with the search giant through 2013 to produce future iterations of its chips. Broadcom also announced plans to provide Anthropic with roughly 3.5 gigawatts of computing capacity through Google's chips. And yet shares of Broadcom, though up nearly 3% Tuesday, are down almost 22% from their record closing high of $481.57 on June 2. So far this year, the stock has rallied only about 14%, trailing well behind the iShares Semiconductor ETF, which is up almost 90% year to date. Nvidia has also lagged in the semiconductor category. The firm said it was surprised by Broadcom's year-to-date underperformance, given the strength of its AI growth trajectory. "[Broadcom] should remain the majority TPU supplier over time, with 80% share, and we see the bearish calls for 50% share or eventual displacement as premature," the analysts wrote, adding that high-bandwidth memory, packaging execution, and scale mean Broadcom's partnership with Google is likely to remain strong. Broadcom also has several other irons in the fire. In April, Meta extended its deal with Broadcom for its custom silicon. And last week , Apple announced an extension of its Broadcom partnership in a $30 billion-plus chipmaking deal. We also remain bullish on Broadcom's AI future, which is why we raised our target price to $480 from $425 last month after its fiscal second-quarter report. In June, we right-sized the position when the stock was red-hot heading into the print. That ended up being a solid move, as the stock sank over 12% following the strong quarterly results, even though the company gave conservative guidance on AI revenue. Broadcom shares rallied nearly 5% last Wednesday after Apple provided additional details on its Broadcom deal. At the time, Jim told investors not to get too greedy or "complacent" when big moves occur in semiconductor stocks, meaning investors should consider locking in some profits when possible. Furthermore, Jim has frequently touted Intel as the semiconductor name to acquire -- we bought more on Monday -- telling investors to hop on it during Tuesday's Morning Meeting . With the stock down 14.5% in the last month, Jim said, "Intel's such a buy here." (Jim Cramer's Charitable Trust is long AVGO, NVDA, and INTEL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

This chipmaker "remains a core AI winner and a close #2 behind NVDA": MS By Investing.com

Investing.com -- Morgan Stanley reiterated an Overweight rating on Broadcom in a note on Tuesday, pushing back on investor concerns that MediaTek could significantly erode Broadcom's share of Google's TPU business. Analyst Joseph Moore told investors that Morgan Stanley expects Broadcom to retain roughly 80% TPU share over time, calling bearish forecasts of 50% share or eventual displacement "premature." The firm said "MediaTek participation is real, but not disruptive," comparing the debate to last year's Marvell/Alchip dynamic on Amazon's Trainium chip, where fears of full displacement also proved overstated. While acknowledging MediaTek has a credible opportunity given Google's cost consciousness and desire for supplier optionality, Morgan Stanley said potential cost savings could be difficult to realize, particularly around HBM memory, since Broadcom has already secured supply under existing contracts. The firm also flagged execution risk around MediaTek's packaging strategy, noting its Taiwan semiconductor team still expects MediaTek to rely on CoWoS capacity for 2nm TPU production, with EMIB packaging technology remaining unproven at the scale Google requires. Morgan Stanley estimated Broadcom will generate roughly $120 billion in AI revenue in fiscal 2027, with TPU-related revenue around $80 billion, though it expects TPU's share of total AI revenue to decline to about 60% as newer ASIC customers ramp. "AVGO remains one of our preferred AI compute names and a close #2 behind NVIDIA," Morgan Stanley said. "We view Broadcom as one of the best growth stories in semis, supported by its leadership in custom ASICs, strong networking franchise, increasing AI revenue diversification, and a management team we trust to execute through product transitions. "While the MediaTek / TPU debate is a real overhang, we think the market is overstating the risk to Broadcom's growth trajectory and view AVGO as a core AI winner."