Artificial intelligence (AI) infrastructure costs are skyrocketing, and hyperscalers (owners of large data centers) are increasingly looking to turn to custom AI chips called ASICs (application-specific integrated circuits) to help them lower costs. ASICs are hard-wired chips that are pre-programmed to perform specific functions. While hyperscalers are responsible for making these chips themselves, they often need help turning their designs into portable chips that can be produced at an acceptable production rate.
Two companies benefiting from this trend are Marvell Technology (NASDAQ: MRVL) again Broadcom (NASDAQ: AVGO). However, while they are leaders in the field, they approach the ASIC market in two very different ways.
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When it comes to ASICs, Broadcom provides customers with an end-to-end solution that is closely tied to its network portfolio to improve efficiency. The company is a leader in SerDes (Serializer/Deserializer) technology, which enables high-speed chip-to-chip communication, and has strong capabilities in advanced packaging that can improve chip performance and reduce power consumption. As a result, Broadcom’s customers tend to be deeply integrated into its ecosystem, providing a sticky solution.
Marvell Technology, on the other hand, is better suited for customers who want more control over their properties. The company specializes in optical interconnects and DSPs (digital signal processors) used in data center interconnects, and often offers an à la carte approach to ASIC designs.
Broadcom is the market leader in the ASIC space, with a market share of around 60%. The company’s biggest customer Alphabetswhich helped develop its widely adopted tensor processing units (TPUs). It also works with several other custom AI chip customers that build their own custom ASICs, including OpenAI and Meta Platforms.
Marvell’s biggest ASIC customer, by far, is here Amazon; is contributing its intellectual property to Amazon Trainium chips. However, it is widely believed that Marvell has lost its position as the lead partner in the upcoming iteration of Taiwanese company AIchip. Microsoft is a major emerging partner, although there have been rumors that it wants to switch to Broadcom. In total, Marvell says it has a winning AI ASIC design with more than 20 customers.
In addition to ASICs, both Broadcom and Marvell have other businesses that benefit from the use of AI infrastructure. Broadcom is seeing strong growth in its telecommunications business, while Marvell’s communications business is growing rapidly.
Both Broadcom and Marvell predict AI ASIC revenue growth in the coming years. However, I think that Broadcom ultimately has more visibility and that its more integrated approach is effectively locking in customers. Meanwhile, its success with TPUs is a big feather in its cap, and TPUs alone should be a major growth driver. As such, Broadcom is an ASIC AI stock that I would like to own.
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Geoffrey Seiler has positions in Alphabet, Amazon, Broadcom, and Meta Platform. The Motley Fool has positions in and recommends Alphabet, Amazon, Marvell Technology, Meta Platforms, and Microsoft. The Motley Fool recommends Broadcom. The Motley Fool has a policy of disclosure.
Better Semiconductor Stock: Broadcom vs. Marvell Technology was first published by The Motley Fool
