Microsoft's CEO, Satya Nadella, made a statement that might pose challenges for Nvidia, yet could potentially benefit a specific AI-focused stock by 2025.
AI has been a hot investment theme on Wall Street, and research firms are bullish about its market potential. McKinsey expects AI to add $13.6 trillion to $22.1 trillion in economic value to current global GDP by 2030. PWC, on the other hand, predicts AI will increase economic activity by $15.1 trillion by 2030. While there's variation in these estimates, most firms agree that AI will have a substantial impact on the global economy.
Nvidia, a major AI chip player, has benefited from the trend, thanks to its extensive adoption of AI-optimized chips. However, Microsoft CEO Satya Nadella's recent comments suggest a shift may be on the horizon. Nadella mentioned in a podcast interview that Microsoft is NOT chip supply-constrained and is in a better position within the next three years. Some interpret this as a hint that Microsoft may have a large inventory of Nvidia chips or alternative solutions in place.
Meanwhile, Broadcom, a custom AI chip manufacturer and advanced networking solutions provider, has seen impressive growth. In fiscal 2024, Broadcom posted a record revenue of $51.6 billion, and its AI revenue surged by 220% year over year to $12.2 billion. With hyperscalers' continuous need for high-bandwidth and low-latency networking components, Broadcom's networking solutions are in high demand for large AI clusters.
Early this year, Microsoft partner and ChatGPT developer OpenAI formed a collaboration with Broadcom and Taiwan Semiconductor Manufacturing to build its first custom inference AI chip, which could potentially diversify OpenAI's chip supply and optimize costs. Microsoft's focus on custom chip development may also lead to a long-term engagement with Broadcom for developing a multigenerational roadmap for its AI infrastructure requirements.
Broadcom's server storage solutions could receive a boost due to Microsoft’s expansion of its data center capacity. With increasing AI deployment worldwide, there may be new opportunities for Broadcom's networking expertise and AI-optimized server storage solutions.
Investors should consider Broadcom's rich valuation, but considering its robust growth potential and Microsoft's chip sufficiency, it may be justified. With Microsoft needing trusted partners for scaling and optimizing its AI infrastructure, Broadcom could be a significant benefactor of this developing trend.
Nvidia, being a major player in AI chip market, has significantly benefited from the investment theme in AI due to its widespread usage of AI-optimized chips. McKinsey and PWC, among other research firms, agree that AI will have a substantial impact on the global economy, with predictions of adding trillions of dollars in economic value by 2030. Moreover, Broadcom's AI revenue saw a surge of 220% year over year, making it an attractive option for investors looking into the economic potential of AI.
