Broadcom's Tomahawk Ultra Challenges NVIDIA's Networking Chip Dominance

Broadcom's Tomahawk Ultra chip is designed to compete with NVIDIA's NVLink products in the networking space, offering lower latency and the ability to connect four times as many AI accelerators. This could boost Broadcom's sales and share appreciation. Meanwhile, NVIDIA's resumption of chip sales to China could be positive for Broadcom, which has a Chinese customer in ByteDance. The U.S. government's shift in policy may also contribute to Broadcom's bullish move.

Broadcom has recently introduced a new networking chip, Tomahawk Ultra, designed to boost AI data center performance and compete with NVIDIA's NVLink products [1]. This chip is aimed at linking hundreds of processors within close range, ensuring fast communication vital for large AI models. Unlike NVIDIA's proprietary NVLink system, Tomahawk Ultra operates on an accelerated version of Ethernet and connects up to four times more chips within a server rack [1].

According to Broadcom senior vice president Ram Velaga, the development of Tomahawk Ultra took engineers around three years, originally aimed at high-performance computing but adapted for AI workloads as demand surged [1]. Taiwan Semiconductor Manufacturing Company (TSMC) is producing the processors using its five-nanometre process, and the chips are already shipping to customers [1].

Tomahawk Ultra acts as a traffic controller, enabling what the industry refers to as 'scale-up' computing, where AI models tap into combined computing power from tightly grouped chips [1]. This capability is crucial for scaling up AI workloads and boosting performance, which is essential for AI firms looking to build faster, more flexible data centers [1].

The introduction of Tomahawk Ultra has had a significant impact on Broadcom's stock. Shares of Broadcom (NASDAQ: AVGO) rose by 2% on July 15, leading the stock to a new all-time closing high [2]. This announcement came on the same day that NVIDIA (NASDAQ: NVDA) announced that it hopes to start delivering its H20 chips to China again soon, with the U.S. government assuring NVIDIA that it will grant the licenses it needs to do so [2]. This shift in U.S. chip policy could also be positive for Broadcom, as it does business with Chinese companies, including ByteDance, the owner of TikTok [2].

Analysts are optimistic about Broadcom's prospects. Mizuho lifted its price target on Broadcom from $315 to $320 on July 16, implying an upside potential of approximately 14% compared to Broadcom's July 16 closing price [2]. The ability to compete with NVIDIA in the networking chip market and the potential for increased sales from China could add notable juice to Broadcom's sales and influence further share appreciation [2].

In conclusion, Broadcom's Tomahawk Ultra chip represents a significant challenge to NVIDIA's NVLink dominance in the networking space. The chip's lower latency and ability to connect four times as many AI accelerators position Broadcom to take market share from NVIDIA, potentially boosting Broadcom's sales and share appreciation. Meanwhile, the U.S. government's shift in policy regarding chip sales to China could also benefit Broadcom, given its business relationships with Chinese companies.

References:
[1] https://dig.watch/updates/broadcom-challenges-nvidia-with-tomahawk-ultra-ai-networking-chip
[2] https://www.theglobeandmail.com/investing/markets/stocks/AVGO/pressreleases/33495905/broadcoms-takes-on-nvidia-why-tomahawk-ultra-could-boost-shares/

Ask Aime: What's the impact of Broadcom's Tomahawk Ultra chip on AI data center performance and stock market?

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