William Blair initiated research coverage of NVIDIA Corporation (NVDA $116.78), Broadcom Inc. (AVGO $164.02), and Arm Holdings plc (ARM $140.14). Nvidia designs accelerated computing chips and hardware systems for AI, gaming, robotics, and autos. Broadcom is a leading designer, developer, and supplier of semiconductor and infrastructure software solutions. Arm is a developer of processor IP that licenses its technology to a broad set of hyperscalers and OEMs.
In a deep dive report published with the initiations, senior associate Sebastien Naji and analyst Jason Ader explore how the rise in AI impacts the computing layer and with it the entirety of data center infrastructure technology.
“Almost two years after the release of ChatGPT, it is becoming clear that AI represents the key new paradigm for the computing world, requiring a reshuffling of design, architecture, and supply chains to address a burgeoning set of use-cases and workloads,” Naji said. “In the AI era, as the emphasis moves from chips to comprehensive systems, we expect systems companies will accrue the bulk of semiconductor revenue, largely overshadowing discrete chip makers. In our view, the semiconductor companies poised to benefit the most are those that have embraced this system approach. Today, we see three vendors at the forefront of this shift: Nvidia, Arm, and Broadcom.”
Naji said, “Nvidia has a long history of designing parallel computing systems to handle complex processing tasks. In the past, this positioned Nvidia as a leader in niche markets like gaming, automotive, visualization, and high-performance computing. The rising AI tide has catapulted parallel computing to the forefront of the tech industry and has driven massive demand for the company’s GPUs and parallel computing stack. Part of this is related to Nvidia’s technical aptitude—we estimate it has a one- to two-year lead over competitors in AI accelerator performance. The other key driver is the company’s system-level approach with DGX/CUDA, which allows Nvidia to layer in critical IP from top to bottom of the IT stack.
“Broadcom is targeting $12 billion in AI revenue in fiscal 2024,” Naji continued, “with roughly two-thirds coming from its custom chip business and one-third related to its Ethernet networking solutions. We see room for continued steady growth going into fiscal 2025 and 2026 driven by increasing custom chip demand, improved software monetization, recovery in non-AI semis, and accelerating growth of Ethernet AI network fabrics built on top of Broadcom’s networking solutions—Ethernet is just starting to displace InfiniBand as the solution of choice for AI networks. And with its largest acquisition to date of VMware, completed in November 2023, Broadcom has added a massive, sticky, recurring revenue base—software now accounts for nearly 40% of total Broadcom revenue.”
Naji said, “Arm provides critical computing IP that underpins more than $200 billion in chip value across the mobile, automotive, IoT, and data center markets, with 29 billion chips shipped in fiscal 2024. Arm sells its processor designs to the biggest chip designers, manufacturers, and OEMs, generating revenue from licensing and volume-based royalties. In the data center market, desire by hyperscalers to build their own chips is being compounded by AI computing demand. As these chips, with Arm-based processors, are manufactured at scale and built into ever-growing data centers, we see substantial room for Arm’s data center business to become a more significant growth driver and higher portion of the royalty revenue base.”
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