Broadcom AVGO stock rose 2% on Monday after Morgan Stanley reiterated its overweight rating on the semiconductor company and Nvidia, highlighting both stocks as preferred ways to gain exposure to the artificial intelligence infrastructure buildout.
The brokerage said memory-related opportunities were improving but maintained that Nvidia and Broadcom continue to offer the most attractive risk-reward profile within its semiconductor coverage universe.
“This remains an unusual memory cycle, as data center strength is the only cause – which means that as we saw in April there are mixed signals elsewhere that may be a false flag. Memory isn’t the best risk reward in our coverage – which we think is NVDA/ AVGO – but it’s catching up fast.”
Morgan Stanley dismisses concerns over Google’s TPU business
In a previous research note, Morgan Stanley addressed concerns that MediaTek could meaningfully reduce Broadcom’s role in supplying Google’s tensor processing units (TPUs).
Analyst Joseph Moore told investors that the firm expects Broadcom to retain roughly 80% of Google’s TPU share over time, arguing that projections calling for a major loss of market share are premature.
The brokerage stated that “MediaTek participation is real, but not disruptive,” drawing comparisons to concerns raised last year over Marvell and Alchip’s involvement in Amazon’s Trainium chip program.
While Morgan Stanley acknowledged that MediaTek has a credible opportunity due to Google’s focus on cost efficiency and supplier diversification, it argued that achieving significant cost savings may prove difficult.
The firm pointed to Broadcom’s existing high-bandwidth memory supply agreements and highlighted execution risks tied to MediaTek’s packaging approach.
According to Morgan Stanley, its Taiwan semiconductor team continues to expect MediaTek to rely on CoWoS packaging capacity for 2-nanometer TPU production, while EMIB packaging technology remains largely unproven at the scale required by Google.
The investment bank estimated that Broadcom could generate approximately $120 billion in AI revenue in fiscal 2027.
Of that total, TPU-related revenue is projected to contribute around $80 billion.
However, the firm expects TPU’s share of Broadcom’s AI business to decline to roughly 60% over time as additional application-specific integrated circuit (ASIC) customers scale their deployments.
Apple partnership provides long-term revenue visibility
Broadcom’s AI growth prospects are being complemented by continued strength in its relationship with Apple.
Earlier this month, Broadcom extended its long-standing partnership with Apple through 2031 under a new multi-year agreement that expands collaboration on custom silicon products.
The deal provides Broadcom with greater long-term revenue visibility from one of its most important customers.
Analysts estimate that Apple accounts for approximately 20% of Broadcom’s annual revenue.
Broadcom has supplied Apple with critical wireless and networking components for years, including radio frequency chips that support cellular connectivity, as well as Wi-Fi and Bluetooth chips used across Apple’s device ecosystem.
Although Apple has increasingly developed chips internally, including its C1 modem, the company continues to rely on Broadcom for several key wireless and radio-frequency technologies.
The renewed agreement builds on a multibillion-dollar partnership announced in 2023 under which Broadcom agreed to develop and manufacture 5G radio frequency components for Apple.
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