Broadcom Inc.Long
Nvidia or Broadcom? Who will be the winner ?
How big is the custom chip market?
By 2027, the custom chip market is expected to reach $90 billion. What does this mean for Nvidia?
Nvidia vs. Custom Chips
In the custom chip (ASIC) sector, two major players, Broadcom (AVGO) and Marvell (
MRVL), have overshadowed Nvidia. Since the end of Q2, they have outperformed the tech giant by approximately 30% and 50%, respectively.
With tech giants like Amazon (
AMZN), Google (
GOOGL), and Microsoft (
MSFT) developing and accelerating the production of their own chips, the market has finally recognized the huge opportunities in custom chips.
How big is the custom chip market?
Based on comments from the two leading custom chip players, we estimate that by 2027, the custom chip market will grow to $90 billion, with a compound annual growth rate (CAGR) of over 60%. Earlier this year, Marvell offered a more conservative forecast, predicting that the market will reach $75 billion by 2028, but with early customer growth suggesting further upside potential. Broadcom’s forecast is even more impressive, estimating the market could reach anywhere from $60 billion to $90 billion by 2027.
Both companies have strong platforms. Marvell’s biggest customers are Amazon and Microsoft, and after gaining deeper insight into their growth, they suggest Marvell’s market prediction might be conservative. Broadcom’s top clients include Google, Meta, and ByteDance, all of whom plan to shift to clusters of one million XPU units by FY2027. Reports also suggest that Broadcom has secured two additional customers (potentially Apple and OpenAI).
What does this mean for Nvidia?
Nvidia’s stock price is currently consolidating, and even when using enterprise value (EV)/EBITDA as a metric, its valuation is now below that of Marvell and Broadcom.
Source: Bloomberg,Spear Invest
Investors now expect Nvidia’s market share to significantly decline by 2027, leading to slower revenue growth. However, the market has underestimated two key factors:
The strength of CUDA.
The yearly product improvement cycle.
I believe CUDA holds a powerful advantage that will reduce the pressure on cloud service providers (CSPs) to promote custom chips at scale. Given that the cloud market accounts for about 50% of the total market, I believe that capturing half of this market between 2027 and 2030 would be a major win for custom chip providers.
Currently, the market assumes, based on comments from Broadcom’s CEO, that most CSP revenue will flow to custom chip vendors, but Broadcom’s assumption may be overly optimistic. Furthermore, whether custom chips can keep up with Nvidia’s yearly product launch cycle remains to be seen—Nvidia’s new products consistently show significant performance improvements with each generation. Our best estimate is that Nvidia’s competitors are still on an innovation cycle of about 1 to 2 years behind Nvidia.
Source: Bloomberg,Spear Invest
Nonetheless, the AI industry chain, especially in the medium to long term, will continue to benefit. For example, AI + Generative Content (AIGC) companies like Adobe (
ADBE) and Unity Software (
U), AI + Software companies like Palantir (
PLTR), AI + Insurance companies like AIX Inc. (
AIFU), and AI + Financial companies like Block (NYSE:SQ) will all benefit.
By 2027, the custom chip market is expected to reach $90 billion. What does this mean for Nvidia?
Nvidia vs. Custom Chips
In the custom chip (ASIC) sector, two major players, Broadcom (
AVGO) and Marvell (MRVL), have overshadowed Nvidia. Since the end of Q2, they have outperformed the tech giant by approximately 30% and 50%, respectively.With tech giants like Amazon (
AMZN), Google (GOOGL), and Microsoft (MSFT) developing and accelerating the production of their own chips, the market has finally recognized the huge opportunities in custom chips.How big is the custom chip market?
Based on comments from the two leading custom chip players, we estimate that by 2027, the custom chip market will grow to $90 billion, with a compound annual growth rate (CAGR) of over 60%. Earlier this year, Marvell offered a more conservative forecast, predicting that the market will reach $75 billion by 2028, but with early customer growth suggesting further upside potential. Broadcom’s forecast is even more impressive, estimating the market could reach anywhere from $60 billion to $90 billion by 2027.
Both companies have strong platforms. Marvell’s biggest customers are Amazon and Microsoft, and after gaining deeper insight into their growth, they suggest Marvell’s market prediction might be conservative. Broadcom’s top clients include Google, Meta, and ByteDance, all of whom plan to shift to clusters of one million XPU units by FY2027. Reports also suggest that Broadcom has secured two additional customers (potentially Apple and OpenAI).
What does this mean for Nvidia?
Nvidia’s stock price is currently consolidating, and even when using enterprise value (EV)/EBITDA as a metric, its valuation is now below that of Marvell and Broadcom.
Source: Bloomberg,Spear Invest
Investors now expect Nvidia’s market share to significantly decline by 2027, leading to slower revenue growth. However, the market has underestimated two key factors:
The strength of CUDA.
The yearly product improvement cycle.
I believe CUDA holds a powerful advantage that will reduce the pressure on cloud service providers (CSPs) to promote custom chips at scale. Given that the cloud market accounts for about 50% of the total market, I believe that capturing half of this market between 2027 and 2030 would be a major win for custom chip providers.
Currently, the market assumes, based on comments from Broadcom’s CEO, that most CSP revenue will flow to custom chip vendors, but Broadcom’s assumption may be overly optimistic. Furthermore, whether custom chips can keep up with Nvidia’s yearly product launch cycle remains to be seen—Nvidia’s new products consistently show significant performance improvements with each generation. Our best estimate is that Nvidia’s competitors are still on an innovation cycle of about 1 to 2 years behind Nvidia.
Source: Bloomberg,Spear Invest
Nonetheless, the AI industry chain, especially in the medium to long term, will continue to benefit. For example, AI + Generative Content (AIGC) companies like Adobe (
ADBE) and Unity Software (U), AI + Software companies like Palantir (PLTR), AI + Insurance companies like AIX Inc. (AIFU), and AI + Financial companies like Block (NYSE:SQ) will all benefit.
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