Broadcom Inc. (AVGO) experienced a 2.85% increase in stock price following Morgan Stanley's reaffirmation of its Overweight rating with a target price of $502. Analyst Joseph Moore expressed confidence that Broadcom will maintain approximately 80% of Google’s tensor processing unit (TPU) business in the long term, despite emerging competition from MediaTek.

Moore highlighted that the stock’s year-to-date performance has been unexpectedly weak, primarily due to investor preference for faster-growing AI semiconductor firms. Concerns about MediaTek's potential disruption to Broadcom's position as a supplier for Google TPUs have been particularly troubling. However, Moore believes that these fears are overstated. He acknowledged MediaTek’s potential role in Google’s supply chain, citing Google’s cost pressures and the need to diversify suppliers, which may lead to MediaTek participating in some 3nm design work.

Nevertheless, Moore argued that this involvement will not result in significant market share losses for Broadcom. He compared the current situation to last year’s dynamics between Marvell and Alchip regarding Amazon’s Trainium chip, where predictions of complete displacement proved premature. Morgan Stanley's analysis suggests that MediaTek's long-term goal is only to secure a 15-20% share rather than a complete takeover.

Additionally, practical challenges for MediaTek include its need for CoWoS packaging capacity for 2nm TPU production, as well as unproven EMIB packaging technology that does not meet Google’s scale requirements. Moore noted that Broadcom has secured HBM memory supply under existing contracts, creating a solid competitive advantage that could complicate MediaTek's efforts to undercut prices.

Looking ahead, Morgan Stanley projects that Broadcom will generate approximately $120 billion in AI-related revenue by fiscal 2027, with roughly $80 billion attributed to TPU sales. As new ASIC customers are anticipated to join by mid-2027, Moore indicated that Broadcom's revenue stream could expand beyond Google.

Overall, Morgan Stanley describes AVGO as a close competitor to NVIDIA in the AI sector, supporting the view of its strong long-term growth potential.

This material is for informational purposes only and should not be considered financial advice.