Investors see Broadcom catching up to Nvidia as the next big AI play, Citi says

• Broadcom is emerging as a strong AI stock pick, according to Citi.
• The bank said Broadcom is seeing an uptick in its AI business as it gains new customers like OpenAI and Bytedance.

Broadcom is gaining ground on Nvidia as the next hot AI stock among investors, according to a Monday note from Citi.

The bank cited recent conversations with investors in New York and Connecticut as evidence that as popular as Nvidia stock is, Broadcom also looks increasingly compelling.

The company, which trades under the ticker symbol "AVGO" on the Nasdaq, has specialized its AI business to help cloud companies like Alphabet and Amazon develop their own customized AI chips for internal use.

"From our conversations, it seems AVGO is catching up to NVDA as the top holding as AVGO has more AI customers joining (OpenAI and Bytedance) and accretion from VMware. We also believe there is some investor fatigue with NVDA," Citi said.

While investors may be warming up to Broadcom in a big way, its stock still has a long way to go before it catches up to Nvidia.

Shares of Broadcom are up 79% in a year, compared to a 177% gain for Nvidia.

Other semiconductor companies that investors were bullish on include NXP Semiconductors and Advanced Analog Devices due to expected inventory replenishments, according to the note, though Citi has a "Sell" rating on NXP Semiconductors due to downside risks in the auto industry.

Finally, investors were most negative on AMD stock as fears grow that its AI-focused MI300 chips will underwhelm with lackluster sales, Citi said, adding there was negative sentiment also around chip firm Micron.

"We are initiating a negative catalyst watch on MU [Micron] as we expect the stock to trade poorly over the next month as we expect Samsung to qualify HBM with NVDA in 3Q24 and raise capex," Citi said, referring to Micron's high-bandwidth memory business.

Citi rates Micron stock at a "Buy" despite the negative catalyst watch.

Despite the mixed sentiment on semiconductor stocks, Citi said it still has a favorable outlook on the sector as a whole.

"We remain wildly bullish on semis," Citi said.