Nvidia, AMD Stocks Slip. Broadcom Says It Will Gain Market Share in AI Chips.

Nvidia chips are the favored choice for training artificial-intelligence models. (Akio Kon/Bloomberg)

Nvidia was falling early on Friday as the market weighed an earnings report from its rival Broadcom . Strong demand for artificial-intelligence chips is being balanced against signs custom AI hardware will make larger inroads into Nvidia’s market share in future.

Nvidia shares were down 2.4% at $167.63 in early trading. The stock rose 0.6% on Thursday, snapping a five-day losing streak.

The big news in the AI chip sector is Broadcom’s earnings, where an upbeat outlook on spending is likely good news for Nvidia. However, a potentially worrisome sign came as Broadcom said it had received $10 billion in orders from a new, unnamed client.

Broadcom shares were up 11% in early trading, while fellow AI chip maker Advanced Micro Devices was down 5.7%.

Multiple Wall Street analysts said they believe Broadcom’s new customer is ChatGPT-developer OpenAI. The Financial Times reported it is OpenAI and the chip will be used for internal workloads from next year to reduce reliance on Nvidia’s hardware, citing people familiar with the matter.

OpenAI didn’t immediately respond to Barron’s request for comment early on Friday.

Broadcom has generally been wary of suggesting it is in direct competition with Nvidia’s graphics-processing units. However, CEO Hock Tan took a more aggressive line when asked by an analyst on an earnings call whether he expected Broadcom’s clients to eventually depend more on its hardware than Nvidia GPUs.

“They will have the confidence to keep using a higher and higher percentage of their compute footprint in their own XPUs [custom chips], for sure. We see that. And that’s why I think we progressively gain share,” Tan said.

As Barron’s has previously written, switching to different chips can involve a frustrating transition for customers to new software, meaning custom processors are often limited to internal workloads. Morgan Stanley analysts estimate that the custom AI chip share of the market stood at 11% in 2024, and will rise to 15% in 2030.

“We…acknowledge that some investors will have concerns that AVGO’s gains at OpenAI are coming at the expense of Nvidia and AMD. Right now, the spending intentions seem so big by so many, hitting that panic button seems premature,” wrote Melius Research analyst Ben Reitzes in a research note.

Write to Adam Clark at adam.clark@barrons.com