Exclusive: Broadcom to launch new networking chip, as battle with Nvidia intensifies

Broadcom (AVGO.O) is launching its new Thor Ultra networking chip, designed to enable the construction of large-scale AI computing systems by efficiently connecting hundreds of thousands of processing units, thereby intensifying its rivalry with Nvidia (NVDA.O) in AI infrastructure. This development follows Broadcom's recent deal to supply custom chips to OpenAI, further challenging Nvidia's dominance in the AI accelerator market. Broadcom projects a substantial AI market opportunity of $60 billion to $90 billion by 2027, having reported $12.2 billion in AI revenue for fiscal 2024 and secured a $10 billion custom AI chip customer, signaling its strategic focus on both AI networking and custom silicon for major cloud and AI players.

Analysis

Broadcom (AVGO) is launching its new Thor Ultra networking chip, designed to enhance AI computing systems by efficiently connecting vast numbers of processing units. This product introduction intensifies Broadcom's rivalry with Nvidia (NVDA) in the critical AI infrastructure market, directly challenging Nvidia's networking interface chips and doubling bandwidth compared to its predecessor. This development contributes to the strongly positive sentiment surrounding Broadcom.

This launch follows Broadcom's recent deal to supply 10 gigawatts of custom chips to OpenAI starting in H2 2026, further eroding Nvidia's dominance in AI accelerators. Broadcom reported robust AI revenue of $12.2 billion in fiscal 2024 and secured an additional $10 billion custom AI chip customer in September. CEO Hock Tan projects a substantial AI market opportunity for Broadcom, ranging from $60 billion to $90 billion by 2027.

Broadcom's strategy emphasizes chip design, leveraging expertise in developing lucrative custom AI chips for major cloud providers like Alphabet's (GOOGL) Google, which have generated billions in revenue. The company's focus on providing designs and reference points for its components encourages significant ecosystem investment, with partners investing $6 to $10 for every dollar Broadcom invests. This model positions Broadcom as a foundational technology provider in the burgeoning AI sector.

Key Decisions for Investors

• Broadcom's aggressive expansion into AI networking and custom silicon, evidenced by the Thor Ultra launch and OpenAI deal, suggests a strong growth trajectory and potential for market share gains against competitors like Nvidia.
• Investors should monitor Broadcom's execution on its projected $60-$90 billion AI market opportunity by 2027, particularly the ramp-up of custom chip deliveries to OpenAI and the performance of its networking solutions in large-scale AI deployments.
• The negative sentiment surrounding Nvidia, coupled with Broadcom's positive outlook, indicates a potential shift in competitive dynamics within the AI infrastructure sector, warranting a re-evaluation of relative valuations and long-term positioning.