As momentum in the artificial intelligence (AI) sector gathers pace, Broadcom Inc. has found itself at the forefront of this evolution. Renowned for its pivotal role in manufacturing Ethernet switching chips for large-scale global AI data centers and customized application-specific integrated circuit (ASIC) chips, Broadcom (stock ticker: AVGO) has rapidly become a key player in the AI hardware space. Since the emergence of the AI investment wave in 2023, the company's market position has intrigued investors, drawing comparisons with the industry's giant, Nvidia (NVDA), whose presence remains overwhelmingly dominant.However, despite fleeting accolades and a promising trajectory, Broadcom's stock price has recently trended downward—a concerning 15% decline from its historic peak observed on October 9. The question arises: what factors are leading to this current underperformance? A closer analysis reveals that investor behaviors are undergoing a notable shift. The technology industry has become a battleground for investments, with capital reallocating from semiconductor stocks deeply embedded in AI hardware infrastructure to Software as a Service (SaaS) stocks that have not yet witnessed significant market hype yet continue to capitalize on the AI frenzy. Some examples include profitability-heavy software companies like Applovin (APP) and Snowflake (SNOW), leading the charge while Broadcom appears to be left trailing.Analysts regarding peg ratios have noted that Broadcom's forward adjusted PEG of 1.69 stands favorably compared to the Technology Select Sector SPDR ETF's (XLK) median of 1.89. Despite an anticipated rise in capital expenditures within super-sized data centers—including substantial investments in AI GPUs and customized AI chips—investors seem to be pricing in Nvidia's prominent 90% market share dominance while remaining skeptical about Broadcom's potential to challenge that supremacy. Yet, industry insiders anticipate Broadcom could grow its share in the AI chip market by an impressive 50% in the upcoming years.After its September earnings report, Broadcom received an optimistic recommitment from Wall Street analysts, many of whom set a price target at $200—a potential upside of 23% within the next twelve months. The bullish sentiment is bolstered by the insatiable demand for Broadcom's Ethernet switch chips across global data centers and the company’s leadership in inter-chip communications and high-speed data transfers. Broadcom's involvement with Google's custom-developed Tensor Processing Unit (TPU) AI accelerator chips further exemplifies the company's venture into cutting-edge AI technology co-development.Broadcom’s Ethernet switch chips are indispensable to data centers and server cluster devices, efficiently handling data flows. These chips are the backbone of AI hardware infrastructures, ensuring rapid data transmission across GPU processors, storage systems, and networks. This capability is crucial for generative AI models, such as ChatGPT, that require the processing of vast quantities of input data and real-time response generation. Beyond this, Broadcom has positioned itself as a dominant player in the ASIC field for AI, partnering with tech powerhouses like Microsoft and Meta, which anticipates fostering long-term strategies to co-develop high-performance ASIC chips.Broadcom's role extends beyond mere chip design. The company has supplied essential inter-chip communication intellectual property to Google and has been responsible for the manufacturing, testing, and packaging of new chips, all of which are vital for supporting the expansion of numeric AI data centers.The demand for Ethernet switch chips, paired with an impressive revenue performance revealed in Broadcom’s fiscal year 2023 and the current fiscal year 2024, underscores the company's resilience. Broadly speaking, customized AI chips have emerged as a growing income source for Broadcom, with indications that tech giants Microsoft and Meta are eyeing Broadcom for their chip development needs. Meta previously collaborated with Broadcom to design its first two generations of AI training processors and plans to continue advancing their next-generation AI chip, MTIA 3, with Broadcom’s assistance.Despite recent stock price fluctuations, many analysts remain optimistic about Broadcom’s prospects. According to TIPRANKS, Wall Street consensus forecasts a favorable price target of around $200, reflecting a 'buy' consensus with no analyst issuing a sell rating. Notably, analysts from Cantor Fitzgerald recently raised their price target for Broadcom from $200 to $225, while Mizuho increased their target from $190 to $220.As Broadcom approaches its fourth quarter earnings report on December 12, 2024, investors are keenly looking out for any shifts in the company's AI-related revenue forecasts. During his last earnings call in September, Broadcom’s CEO Hock Tan expressed confidence in the burgeoning demand for customized AI chips from major cloud providers like Microsoft, Amazon AWS, and Google, all of whom are ramping up their AI capital expenditures.Even though Nvidia’s data center AI GPUs are the backbone of popular generative AI tools like ChatGPT, Broadcom continues to benefit from the AI surge through its provision of essential AI hardware components and software solutions. For enterprises striving to emulate the capabilities of generative AI applications, including Google and Microsoft’s extensive data centers, the importance of Broadcom's Ethernet switch chips and GIS-customized AI ASIC solutions cannot be overstated.As evident from Broadcom's third-quarter earnings season, the momentum of customized AI chips continues. Big cloud players are diligently increasing their investments in AI chips to maintain their competitive edge in an ever-accelerating AI landscape. Morgan Stanley recently projected that AI capital expenditures from major cloud providers may surge to $300 billion by 2025.The central question now is whether Broadcom can exceed their September guidance of forecasted AI related revenues of $12 billion for 2024. Wall Street analysts are showing great faith in CEO Tan and his leadership team. As large-scale AI clusters become a focal point (>100,000 AI GPUs), AI hardware infrastructures such as AI GPUs and ASIC chips are becoming pivotal assets in the escalating AI supremacy race. As tech giants grapple with adequate AI processing capabilities and expanding cost challenges, Broadcom’s unmatched expertise in customized AI chip design is positioned to drive significant revenue spikes in the forthcoming stages.Partnering with Google and others, Broadcom aims to dismantle Nvidia's current monopoly on AI training and inferencing software accelerators. The company typically collaborates with partners to design software development kits (SDKs) and computational acceleration libraries tailored to enhance the performance of their proprietary AI hardware, akin to Nvidia’s offerings based on its CUDA platform like cuDNN and TensorRT.Broadcom's CEO, Hock Tan, emphasized in September that customized AI chips constitute two-thirds of their AI revenue. Furthermore, Broadcom has successfully established collaborative relationships in customized AI chip sectors alongside three major data center operators. Political headwinds faced by Chinese tech giants may also prompt some of the country's leading tech companies to forge partnerships with Broadcom to develop custom AI chips, given the increasing complexities involved in acquiring Nvidia chips.The expansion of OpenAI signifies that working with Broadcom to develop custom AI chips is becoming a viable business model, potentially enhancing operational efficiencies and cutting costs. Some analysts suggest that Broadcom's estimates regarding its customized AI chips taking a more prominent place in the AI workloads of large-scale data centers over the next five years are not unfounded. While Nvidia may continue to dominate with more than 60% market share, Broadcom's niche in the customized AI chip market, with annual compound growth rates reaching 50%, is on a solid upward trajectory. Amazon AWS's collaborations with cloud customers illustrate that the customized AI chip business demonstrates not only high growth potential but also long-term viability.However, as a leading player in Ethernet chips, Broadcom may still face daunting challenges from Nvidia, which is keen on developing cost-effective “AI hardware system bundles” to promote adoption of both Ethernet and InfiniBand network products. Nevertheless, Broadcom's executives maintain a steadfast faith that they can uphold “industry standards,” buoyed by their Ethernet products’ vast market share, which ultimately showcases broad scalability and energy efficiency. While the competitive dynamic between Nvidia and Broadcom is bound to intensify, the latter’s diversified business model is anticipated to cushion against any unexpected downturns in individual business segments.