Shares of artificial intelligence (AI) chipmakers like Broadcom (NASDAQ: AVGO), Marvell Technology (NASDAQ: MRVL), and Arm Holdings (NASDAQ: ARM) rallied on Monday, with gains ranging from 1.2% to 4.9%. These results follow a brief sell-off in AI-related chip stocks during the last couple of weeks of 2024.
The rally can be attributed to several factors. Foxconn's recent monthly revenue figures indicate significant growth, particularly in December, which saw a year-over-year increase of 42.3%. This robust growth is largely due to high demand for AI servers, a key indicator that the sector will continue to thrive despite recent hypergrowth.
Furthermore, a blog post by Microsoft on Friday highlighted its plan to spend upwards of $80 billion on AI data centers this fiscal year. While not directly related to Foxconn's revenue figures, this announcement underscores the ongoing investment in AI infrastructure, which is beneficial for companies like Broadcom and Marvell that supply custom accelerator parts to cloud computing giants.
The introduction of Nvidia's new Blackwell chip has also contributed to the rally. Although its rollout had been delayed, production began ramping up significantly in late Q4. As Arm licenses its architecture to Nvidia and other cloud giants for their data center CPUs, which are often paired with custom accelerators like those provided by Broadcom and Marvell, a steepening ramp-up in Blackwell production would benefit all three companies.
Nvidia's surging stock price on Monday was, in part, responsible for the gains experienced by Broadcom and Marvell. However, these two companies have established themselves as prime beneficiaries of the AI infrastructure boom, with cloud computing giants continually investing in their custom accelerator parts to cut costs. This trend has led to stellar results for Broadcom and Marvell, with 110% and 84% year-over-year increases, respectively.
Arm Holdings experienced significant gains on Monday as well, with its stock price rising by nearly 6%. While the company is known for its volatility, its performance is closely tied to Nvidia's success. As Arm supplies its architecture to cloud giants for their data center CPUs, which often accompany custom accelerators, the boom in Foxconn orders bodes well not only for Nvidia but also for Broadcom and Marvell.
For investors considering purchases of these AI chip stocks, caution is advised given their lofty valuations. Broadcom's valuation stands at 37 times this year's earnings estimates, while Marvell's and Arm's values are an even higher 44 and 71 times, respectively. This elevated pricing leaves room for potential price volatility should there be any signs of a slowdown in AI growth.
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