Investing.com -- Redburn Atlantic has begun coverage on three semiconductor stocks—Broadcom Inc (NASDAQ: AVGO ), Arista Networks (NYSE: ANET ), and Marvell Technology Inc (NASDAQ: MRVL ).
Although investor sentiment around Generative AI has become more cautious, Redburn analyst Mike Harrison remains constructive on application-specific integrated circuits (ASICs), citing their strong link to areas of spending that large tech companies continue to prioritize.
"As hyper-scalers and major tech companies invest to protect their competitive positions, ASICs are critical due to their better capital efficiency," he said in a note.
The brokerage started Broadcom and Arista with Buy ratings, citing their strong positioning in AI data center infrastructure.
“Broadcom is arguably the pre-eminent ASICs co-partner with a strong pipeline of future customers,” Harrison said in the note, pointing to its involvement across multiple GenAI silicon programs, including with Meta (NASDAQ: META ), Apple (NASDAQ: AAPL ), and OpenAI.
“We think that consensus is not giving Broadcom sufficient credit for the strength of its ASICs pipeline,” the analyst added.
For Arista, Harrison highlighted that the company’s edge lies in its Extensible Operating System ( EOS ) and the ability to support large-scale Ethernet-based AI clusters, which “implies a longer growth runway as the corporate adoption of GenAI increases.”
“However, since this implies that Arista is exposed to both internal and external workloads at hyperscalers, there is plausibly greater exposure to near-term cyclical headwinds within Arista’s GenAI revenue streams than Broadcom’s,” the analyst warns.
Marvell was rated Neutral, with Harrison voicing caution over its role in future Amazon (NASDAQ: AMZN ) Web Services Trainium chips and growing competition.
While Marvell’s year-to-date share price decline of 50% implies that the impact of a more modest role on AWS’s Trainium 3 has been derisked, Harrison wants to see “greater visibility on design wins for Marvell to be more constructive on the stock at present.”
Speaking more broadly, Redburn expects ASIC penetration in accelerated compute to rise from 12% toward 30% in the medium term, driven by internal workloads at hyper-scalers.
“ASICs benefit from two discrete levers to offset – wholly or partially – a softening in the trajectory of hyper-scaler capex,” the report noted. In contrast, networking revenues are viewed as more exposed to cyclicality due to reliance on broader enterprise AI adoption.
While Redburn forecasts strong growth in custom chips and AI networking, the broker cautions that hyper-scalers’ move to develop chips in-house poses a long-term risk. Although technical complexity and resource demands remain high, growing internal capabilities at firms like Google (NASDAQ: GOOGL ) and AWS could gradually limit third-party opportunities.
Price targets were set at $301 for Broadcom, $112 for Arista, and $67 for Marvell. At the time of the report, these imply potential upsides of 32%, 22%, and 10%, respectively.