Written by｜Huang Yayuan, Wei Pengcheng, Li Heran
Broadcom’s latest financial report indicates that AI customized chips (ASIC) and Ethernet network products are driving rapid growth in its AI revenue, further proving the significant role of the ASIC + Ethernet model in the future development of the AI industry. Meanwhile, Broadcom predicts that by 2027, the Serviceable Addressable Market (SAM) for customized chips and networks will reach $60-90 billion. We expect that with the high growth of the customized chip market, Ethernet solutions will also experience rapid development. We particularly recommend manufacturers that are leading in Ethernet solution layouts.
▍Broadcom’s AI revenue is rapidly growing, benefiting from ASIC and Ethernet products.
At its Q4 2024 earnings call, Broadcom stated that AI customized chips (ASIC) and Ethernet network products are driving its AI revenue growth. Broadcom mentioned that three major cloud service providers have already established multi-generation technology roadmaps for AI customized chips, and Broadcom is also customizing development for the next generation AIXPU for two other large-scale companies. Broadcom expects that in the future, these cloud service providers plan to deploy 1 million XPU clusters within a single architecture, with a SAM scale reaching $60-90 billion by 2027. We believe that the model of CSP manufacturers developing customized chips + Ethernet is likely to experience rapid development in the future.
▍The ASIC + Ethernet combination has cost advantages over NV + IB, strengthening the trend of domestic Ethernet solutions accelerating their application in AI clusters.
In July 2023, Broadcom, Intel, AMD, Cisco, Arista, and others jointly established the “Super Ethernet Alliance,” subsequently launching RoCEv2 to counter NVIDIA’s monopoly trend in cluster interconnect technology. Chinese manufacturers such as Alibaba Cloud, Unisoc, and Ruijie Networks have since joined the Super Ethernet Alliance. Currently, many domestic AI clusters are adopting the Ethernet RoCEv2 solution, balancing cost, scalability, and high-speed low-latency performance. Broadcom’s FY24Q4 semiconductor revenue exceeded expectations, further validating the important role of Ethernet in AI clusters. In the first three quarters of 2024, both Unisoc and Ruijie’s 400G switch revenues have significantly increased, and the 800G switch is accelerating its introduction. At the chip level, Shengke Communication’s 12.8T/25.6T chips are now capable of mass production. We are optimistic about the sustained demand for leading domestic switch and switch chip companies. Additionally, as the scale of AI clusters expands, the demand for AIDC will also increase rapidly.
▍Inference end drives the demand for Ethernet optical modules, AEC has obvious advantages in short-distance connections.
As the business models for AI applications gradually mature, the demand at the inference end will drive rapid growth in the demand for Ethernet optical modules. In the future, optical modules are expected to experience dual-driven demand from “training end driving Infiniband network demand” + “inference end driving Ethernet demand.” In the investor communication records from Zhongji Xuchuang in June this year, it was also stated that the demand at the inference end is driving rapid growth in the sales of Ethernet switches and associated 800G optical modules. Leading domestic optical module manufacturers currently have a leading market share in overseas/domestic markets and are expected to benefit significantly from the booming future demand for Ethernet optical modules. Furthermore, due to its low cost, low power consumption, and high reliability, AEC has certain advantages over AOC and DAC in short-distance connections (3-7 meters), effectively meeting the short-distance network needs of AI. According to the latest report from SemiAnalysis, AWS has already introduced the AEC solution in its latest AI network architecture, so we are optimistic about the increasing penetration rate of AEC in AI networks and recommend paying attention to leading AEC companies and domestic companies with potential supply capabilities.
▍Risk Factors:
Progress in AI-related applications may not meet expectations; cloud service providers’ capital expenditures may fall short of expectations; demand for new technology routes like Ethernet may not meet expectations; leading manufacturers’ R&D progress may lag; industry market competition may intensify; technical path risks; supply chain risks;
▍Investment Strategy:
Broadcom’s latest financial report indicates that AI customized chips (ASIC) and Ethernet network products are driving rapid growth in its AI revenue, further proving the significant role of the ASIC + Ethernet model in the future development of the AI industry. Meanwhile, Broadcom predicts that by 2027, the SAM for customized chips and networks will reach $60-90 billion. We expect that with the high growth of the customized chip market, Ethernet solutions will also experience rapid development. We particularly recommend manufacturers that are leading in Ethernet solution layouts, such as leading switch and switch chip companies; the optical module supply chain and AEC leaders; and AIDC leaders.
This article is excerpted from the “Morning Meeting” report published by the Research Department of CITIC Securities on the same day. For detailed analysis content (including related risk warnings, etc.), please refer to the report. In case of any ambiguity arising from the excerpt of the report, the complete content published on the day of the report should prevail.
The securities market research information contained in this material is prepared by the Research Department of CITIC Securities Co., Ltd. (hereinafter referred to as “CITIC Securities”). The Research Department of CITIC Securities is positioned as a sell-side research team aimed at professional institutional investors. This material, produced in the form of WeChat, is intended only for professional investors among CITIC Securities clients and should not be forwarded in any form. CITIC Securities does not consider any subscriber to this public account as a client of CITIC Securities due to any subscription act. If you are not a professional investor among CITIC Securities clients, to ensure service quality and control investment risks, please first contact the institutional sales service department or the customer manager of the brokerage business system to complete the investor suitability matching, and fully understand the nature, characteristics, precautions, and potential risks or losses that may arise from improper use of this service before subscribing, receiving, or using the information in this public account. This material is difficult to set access permissions for, and we apologize for any inconvenience caused! Thank you for your understanding and cooperation. If you have any questions, please send an email to [email protected].
Important Statement:
This material is positioned as “investment information reference service,” not specific “investment decision service,” and does not involve judgments on specific securities or financial instruments at specific prices, specific times, or specific market performance. It is particularly important to note that (1) the recipient of this material should carefully read the attached statements, information disclosure matters, and risk warnings, pay attention to the key assumptions under which related analyses and forecasts can hold, focus on the predicted time cycle of investment ratings and target prices, and accurately understand the meaning of investment ratings. (2) The information contained in this material is considered reliable, but CITIC Securities does not guarantee its accuracy or completeness, and its related analytical opinions and speculations may change without notice based on subsequent securities research reports published by the Research Department of CITIC Securities, and may differ or contradict the opinions given in similar materials prepared by other departments, units, or affiliates of CITIC Securities due to the use of different assumptions and standards or different viewpoints and analytical methods. (3) Before making specific investment decisions, investors should also consider their own risk preferences, funding characteristics, and other specific circumstances, and combine various other auxiliary analysis methods, including “stock picking” and “timing” analysis, to form independent decisions. To avoid misunderstandings regarding the research methods, investment ratings, target prices, etc., involved in this material, and to prevent investment losses, it is advisable to seek guidance from professional investment advisors when necessary. (4) The risks listed above do not encompass all risks involved in the improper use of this material. Investors should not solely rely on the relevant information received to replace their own independent judgment and must fully understand various investment risks, make independent investment decisions, and assume investment risks.
All materials in this public account are copyrighted by CITIC Securities. No content in this public account may be modified, sent, or copied in any way. Except for situations recognized by CITIC Securities, all other reprint behaviors are illegal. All rights reserved, violators will be prosecuted.