HSBC expects demand for chips to grow for IT giants. Which company will benefit from this?

British bank HSBC raised its recommendation on shares of American chipmaker Broadcom and now advises to buy them. In addition, analysts raised the target price of securities by 67%. They expect that by 2027 the demand for narrowly focused chips, which help IT-giants to create their processors for artificial intelligence, will grow significantly. Broadcom could be one of the main beneficiaries of this. The semiconductor company's share price hit a new record in trading on June 24.

HSBC upgraded Broadcom's stock from Hold to Buy and raised its target price by two-thirds to $400 from $240, reports CNBC. That outlook implies a potential upside of 58% from June 23, the last closing level at the time of HSBC's note.

On Tuesday, June 24, shares of Broadcom reached a new record high, rising to $265.87. Trading ended up 3.94% to $263.77. This closing price also became the maximum for the whole time of securities trading.

HSBC has become much more optimistic about chipmaker Broadcom's special purpose integrated circuit (ASIC) business, reported CNBC. These are chips aimed at accomplishing one specific task. They help big tech companies build their AI processors, noted Barron's. AI race leaders Microsoft, Apple and Amazon are developing their own chips to less depend on supplies from Nvidia and its competitors.

"We are changing our outlook on Broadcom to positive as we now believe ASIC revenue will significantly outperform market expectations due to greater transparency on projects and the company's stronger pricing position," said the note, as quoted by CNBC.

According to HSBC analysts, the market is now underestimating Broadcom's potential for AI chip revenue growth over the next two years, Barron's reports. The bank raised its forecast for the company's sales in this area to $28.4 billion in 2026 and $42.8 billion in 2027: that's 42% and 69%, respectively, above average analyst expectations, reported The Motley Fool.

Almost all major cloud players are now investing in their own processors, noted TipRanks. "Translation? It means Broadcom hasn't just ridden the AI wave - it's become the engine of the surfboard," the publication explained. 

In March, Broadcom CEO Hock Tan said the company was developing AI chips for three major cloud customers,  writes CNBC. That said, Tan emphasized that all three customers are "unwavering" in their intention to invest in AI infrastructure. Tan also said that four other companies will join the list, but did not name them.

Broadcom develops or manufactures custom AI chips for key players in the cloud market:

- is helping to build AI chip Tensor Processing Units for Google, asreported by The Register.

- Meta uses the MTIA chip in its servers, which, as wrote Barron's, Broadcom helped develop.

- The company is also involved in creating the Baltra server AI chip for Apple, wrote the Information. The processor is expected to be ready in 2026. 

The semiconductor company's securities have strengthened 67% over the past year and 14% since the beginning of January.

According to data from MarketWatch, Broadcom's stock has been given a rating of  49 by 49 analysts, with the majority recommending a buy: the stock has 35 Buy ratings and nine Overweight. Five Buy recommendations have been added in the past month. Only four analysts advise holding the stock in the portfolio (Hold), while one suggests selling (Underweight).

The Wall Street consensus price target is $284.5, up 8% from Tuesday's closing price.

This article was AI-translated and verified by a human editor