Updated at 10:04 AM EST

Broadcom  (AVGO)  shares edged lower Monday after the chip and networking-equipment maker received another boost to its AI outlook from analysts at UBS.

The AI investment drive has helped add more than $350 billion to Broadcom’s market value over the past year, with the stock hitting an all-time high of $1,295.97 late last week.

And as investors separate the various value-adding components of AI chip makers, analysts are starting to see even more earnings potential from the Palo Alto, Calif., tech group, which has long been tied to the fortunes of its biggest customer, Apple  (AAPL) .

Building out large AI models requires a series of networks, connected by nodes, which determine the speed at which the collection of information in one network is passed along to the next. 

Broadcom’s offers of application-specific integrated circuits, also known as ASIC chips, help these multiple networks communicate with each other, overcome congestion and ultimately accelerate the speed and reliability with which they process information.

Broadcom’s semiconductor sector revenue, which includes accelerators and network connectors, rose by 9% last year to $28.2 billion

Advanced Micro Devices  (AMD)  has said the market for these AI accelerators could reach $400 billion over the next four years.

Broadcom to benefit from ASIC ramp

UBS analyst Timothy Arcuri sees “more of a ramp in Broadcom’s custom ASIC business in FY25 than previously baked into our estimates”, and boosted his price target on the chipmaker by $400, to $1,475 per share, in a note published Monday.

“What we’re seeing is a market that continues to grow to accelerate. And what is also very obvious is very, very dynamic,” Broadcom CEO Hock Tan told investors after the group’s fourth-quarter report in December. 

“As architectures of large language models, software models continues to change, I mean literally change on the fly, we are also seeing the requirements for compute silicon change,” he added. “I fully concur with AMD when they indicate that it looks like demand appears to be accelerating rather than staying stable or decelerating.”

Broadcom forecast fiscal 2024 revenue in the region of $50 billion, which fell just shy of Wall Street forecasts. It said AI-related sales would comprise around a quarter of that total, up from 15% in the prior year, with a profit margin of around 60%.

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Broadcom is scheduled to report fiscal-first-quarter earnings after the close of trading on March 7, with KeyBanc Capital Markets analyst John Vinh forecasting “continued growth in hyperscale primarily related to AI” for semiconductor revenue, alongside “strong demand for AI networking.”

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The group has only a small number of major clients, however, and its reliance on Apple for around 13% of its overall sales, as well as nearly a quarter of its semiconductor revenue, remains a concern.

As does its relationship with Google, which is looking to claw back some of the AI momentum it lost to Microsoft  (MSFT)  last year. Alphabet’s  (GOOG) Google will ramp the production of its Tensor processing units used to accelerate machine-learning workloads in its cloud offering.

Broadcom shares were marked 0.84% lower in early Monday trading and changing hands at $1,272.60 each, a move that still leaves the stock with a 2024 gain of around 17.4%.

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