- Broadcom is emerging as a strong AI stock, according to Citi.
- The bank said Broadcom's AI business is expanding as it wins new clients such as OpenAI and ByteDance.
- “We believe investor fatigue with NVDA is also emerging,” Citi said.
Broadcom has overtaken Nvidia as the next hottest AI stock among investors, according to a Monday note from Citi.
The bank cited recent conversations with investors in New York and Connecticut as evidence that Broadcom shares are becoming increasingly attractive, just as Nvidia shares are.
The company, traded on the Nasdaq under the ticker symbol “AVGO,” focuses on AI, helping cloud companies such as Alphabet and Amazon develop their own customized AI chips for their own internal use.
“From our conversations, it appears AVGO is catching up to NVDA as the largest holding as more AI customers join (OpenAI and Bytedance) and the capital raise from VMware have added to the mix. We also believe there is investor fatigue with NVDA,” Citi said.
Investors may be feeling pretty good about Broadcom, but the company's stock still has a long way to go before it can catch up with Nvidia's.
Broadcom shares are up 79% in the past year, while Nvidia's shares are up 177%.
Other semiconductor companies investors are bullish on include NXP Semiconductors and Advanced Analog Devices due to expected inventory restocking, according to the note, although Citi has rated NXP Semiconductors at Sell due to downside risks in the auto industry.
Finally, investors were most negative on AMD shares as concerns grew that the company's AI-focused MI300 chips would fail to meet expectations due to weak sales, Citi said, adding that there was also negative sentiment towards chipmaker Micron.
“We have begun monitoring negative catalysts for MU. [Micron] Regarding Micron's high-bandwidth memory business, Citi said, “We expect the stock to remain underperforming over the next month as we expect Samsung to achieve NVDA qualification for HBM in 3Q24 and increase capital expenditures.”
Citi rates Micron shares a “buy” despite negative catalyst watch.
Despite mixed sentiment on semiconductor stocks, Citi said it still has a favorable outlook for the industry as a whole.
“We remain very bullish on semiconductors,” Citi said.
