AI chip stocks including Broadcom, Marvell, and Arm Holdings rally again today due to growing demand for artificial intelligence technology.

Why AI Chip Stocks Broadcom, Marvell, and Arm Holdings Rallied Again Today

In recent weeks, the artificial intelligence (AI) chip market has experienced a surge in activity. On Monday, shares of AI chipmakers like Broadcom, Marvell Technology, and Arm Holdings rallied, with some even hitting as high as 4%, 4.4%, and 5.4% gains at one point. As of 1:26 p.m. ET, their gains had moderated to 1.2%, 1.7%, and 4.9%, respectively.

The AI Chip Market: A Brief Overview

The past two years have seen hypergrowth in the AI chip market, driven by increased demand from cloud computing giants and other companies investing heavily in developing and producing their own chips to cut costs. This trend is expected to continue in the near term, with some analysts predicting a 2025 boom for AI-related stocks.

Foxconn’s Blowout Monthly Revenue

One of the key drivers behind Monday’s rally was Foxconn’s blowout monthly revenue figures released on Monday morning. Hon Hai Precision, also known as Foxconn, is one of the world’s largest electronics assemblers and has significant businesses in electric vehicles and AI servers. The company reported a massive year-over-year growth of 42.3% in December, its highest figure of any month last year.

Foxconn’s Growth: A Positive Indicator for AI Chip Demand

Foxconn’s growth was primarily due to high demand for AI servers, which is a positive indicator for the near-term outlook of the AI sector. This trend bodes well for companies like Broadcom and Marvell, who have a duopoly as makers of custom accelerator parts incorporated into cloud computing giants’ own AI accelerator designs.

Microsoft’s $80 Billion AI Data Center Bet

On Friday, Microsoft published a blog post stating that it would spend upwards of $80 billion on AI data centers this fiscal year. This move is expected to further boost demand for AI servers and related components, benefiting companies like Foxconn, Broadcom, and Marvell.

Nvidia’s Blackwell Chip: A Catalyst for Growth

The rollout of Nvidia’s new Blackwell chip had been delayed but is now ramping up in late Q4. As a result, production is expected to increase significantly, driving growth for companies like Arm Holdings, who licenses its architecture to cloud giants for their data center CPUs.

Why Broadcom and Marvell Are Poised for Growth

Broadcom and Marvell have benefited from the boom in Foxconn orders, which bodes well not only for Nvidia but also for these two companies. With cloud companies investing heavily in developing and producing their own chips to cut costs, shares of Broadcom and Marvell have soared.

A Closer Look at Valuations

In 2024, Broadcom rose by 110%, Marvell gained 84%, and Arm was up 64% – all stellar results. However, there is a lot of optimism reflected in their valuations. As of now, Broadcom is valued at 37 times this year’s earnings estimates, Marvell at 44 times, and Arm at 71 times.

Risks Ahead

While the AI infrastructure buildout shows no signs of letting up, AI winners such as these three are trading at quite full valuations. Should there be any hint of an AI growth slowdown at all relative to expectations, their prices could slide.

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Conclusion

The AI chip market is poised for continued growth, driven by increased demand from cloud computing giants and other companies investing heavily in developing and producing their own chips to cut costs. While there are risks ahead, companies like Broadcom, Marvell, and Arm Holdings are well-positioned to benefit from this trend.

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