Custom chip designer Broadcom (NASDAQ: AVGO) needed some good news after Apple said it would no longer be using Broadcom’s chips in iPhones. Yesterday, AVGO shares dropped from $184 to $178 on that news.
But I guess Broadcom had a PR release ready to offset the hit from Apple…
Last night, Broadcom said the revenue it generates from its AI chip sales would rise 65% in 2025. The stock is ramping up $35 today and joining the $1 trillion dollar valuation club in response.
It’s said that what’s good for the goose is good for the gander, or, if you prefer a nautical metaphor, that the rising tide will lift all boats. Because it’s often true that a secular trend is good for all of the companies within a sector. Often true, but not always. Right now, a better metaphor for the chip sector is that it has a seismic fault line running through it…
On one side of the faultline, you’ve got chip stocks like Broadcom, Marvell (NASDAQ: MRVL), and lesser-known Astera Labs (NASDAQ: ALAB). AI’s tectonic shift is making mountains on each of these chip stock charts, pushing them to new highs.
On the other side of the fault line, AMD (NYSE: AMD) reversed a pre-market gain and is down nearly $5 on the day. Even Nvidia reversed a strong open by around $6. The AI chip leader hasn’t made a new high since it reported earnings on November 21.
With a market valuation of $141 billion, Applied Materials (NASDAQ: AMAT) is one of the biggest sources for the gear needed to manufacture semiconductors in the world. The stock is down $87 from its midsummer highs. Nearly all of its 2024 gains are now gone:
The same is true for the Dutch company that makes lithography machines that can etch 3-nanometer circuits into semiconductors. It’s the only company in the world that can make these. Even with restrictions on sales to China, analysts have raised earnings for ASML. Still, the stock is 35% off its highs and is trading at 52-week lows.
Taiwan Semiconductor (NYSE: TSM) straddles the faultline. They make all of the world’s ost advanced chips. The company declined to put in orders for ASML’s latest and greatest lithography machines, which no doubt hurt ASML.
Broadcom’s bullish chip forecast pushed TSM shares up $10 today.
But I bet we’re about to learn that TSM will make fewer chips for AMD, which helps explain why the stock has been moving sideways since its last new high on October 17.
Just a couple of years ago, the rising tech tide did lift all semiconductor stocks. But AI has pretty much ruined that metaphor. The seismic faultline works much better for the semiconductor sector now – because the terrain has shifted so fast that if a company is on the wrong side, it might be too late to catch up.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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