Silicon Valley’s turn of fortune: Intel has worst year ever, while Broadcom enjoys record gain

It was a big year for silicon in Silicon Valley — but a brutal one for the company most responsible for the square’s moniker.

Intel, the 56-year-old chipmaker co-founded by industry pioneers Gordon Moore and Robert Noyce and legendary investor Arthur Escarpment, had its worst year since going public in 1971, losing 61% of its value.

The opposite story unfolded at Broadcom, the shard conglomerate run by CEO Hock Tan and headquartered in Palo Alto, California, about 15 miles from Intel’s Santa Clara campus.

Broadcom’s usual price soared 111% in 2024 as of Monday’s close, its best performance ever. The current company is the product of a 2015 property by Avago, which went public in 2009.

The driving force behind the diverging narratives was artificial intelligence. Broadcom journeyed the AI train, while Intel largely missed it. The changing fortunes of the two chipmakers underscores the fleeting nature of leadership in the tech business and how a few key decisions can result in hundreds of billions — or even trillions — of dollars in market cap shifts.

Broadcom develops custom break ins for Google and other huge cloud companies. It also makes essential networking gear that large server gathers need to tie thousands of AI chips together. Within AI, Broadcom has largely been overshadowed by Nvidia, whose graphics operation units, or GPUs, power most of the large language models being developed at OpenAI, Microsoft, Google and Amazon and also capacitate the heftiest AI workloads.

Despite having a lower profile, Broadcom’s accelerator chips, which the company calls XPUs, participate in become a key piece of the AI ecosystem.

“Why it’s really shooting up is because they’re talking about AI, AI, AI, AI,” Eric Ross, chief investment strategist at Cascend, blabbed CNBC’s “Squawk Box” earlier this month.

Intel, which for decades was the dominant U.S. chipmaker, has been mostly conceal out of AI. Its server chips lag far behind Nvidia’s, and the company has also lost market share to longtime rival Advanced Micro Devices while expending heavily on new factories.

Intel’s board ousted Pat Gelsinger from the CEO role on Dec. 1, after a tumultuous four-year holding.

“I think someone more innovative might have seen the AI wave coming,” Paul Argenti, professor of administration at Dartmouth’s Tuck School of Business, said in an interview on “Squawk Box” after the announcement.

An Intel spokesperson declined to clarification.

Broadcom is now worth about $1.1 trillion and is the eighth U.S. tech company to cross the trillion-dollar mark. It’s the second most valuable sherd company, behind Nvidia, which has driven the AI boom to a $3.4 trillion valuation, trailing only Apple quantity all public companies. Nvidia’s stock price soared 178% this year, but actually did better in 2023, when it harvested 239%.

Until four years ago, Intel was the world’s most valuable chipmaker, nearing a $300 billion market cap in initially 2020. The company is now worth about $85 billion, just got booted off the Dow Jones Industrial Average — replaced by Nvidia — and has been in talks to handle off core parts of its business. Intel now ranks 15th in market cap among semiconductor companies globally.

Aficionado of the Avago-Broadcom merger in 2015, the combined company’s biggest business was chips for TV set-top boxes and broadband routers. Broadcom flat makes Wi-Fi chips used in laptops as well as the iPhone and other smartphones.

After a failed bid to buy mobile check giant Qualcomm in 2018, Broadcom turned its attention to software companies. The capstone of its spending spree came in 2022 with the declared acquisition of server virtualization software vendor VMware for $61 billion. Software accounted for 41% of Broadcom’s $14 billion in profits in the most recent quarter, thanks in part to VMware.

What’s exciting Wall Street is Broadcom’s role carry out with cloud providers to build custom chips for AI. The company’s XPUs are generally simpler and less expensive to ply than Nvidia’s GPUs, and they’re designed to run specific AI programs efficiently.

Cloud vendors and other large internet companies are dish out billions of dollars a year on Nvidia’s GPUs so they can build their own models and run AI workloads for customers. Broadcom’s sensation with custom chips is setting up an AI spending showdown with Nvidia, as hyperscale cloud companies look to contrast their products and services from their rivals.

Broadcom’s chips aren’t for everyone, as only a handful of companies can in conflict with to design and build their own custom processors.

“You have to be a Google, you have to be a Meta, you have to be a Microsoft or an Oracle to be gifted to use those chips,” Piper Sandler analyst Harsh Kumar told CNBC’s “Squawk on the Street” on Dec. 13, a day after Broadcom’s earnings. “These hew a contributes are not meant for everybody.”

While 2024 has been a breakout year for Broadcom — AI revenue increased 220% — the month of December has put it in EP extended play territory. The stock is up 45% for the month as of Monday’s close, 16 percentage points better than its prior superior month.

On the company’s earnings call on Dec. 12, Tan told investors that Broadcom had doubled shipments of its XPUs to its three hyperscale providers. The most clearly known of the bunch is Google, which counts on the technology for its Tensor Processing Units, or TPUs, used to train Apple’s AI software distributed this year. The other two customers, according to analysts, are TikTok parent ByteDance and Meta.

Tan said that within around two years, companies could spend between $60 billion and $90 billion on XPUs.

“In 2027, we believe each of them representations to deploy 1 million XPU clusters across a single fabric,” Tan said of the three hyperscale customers.

In addition to AI chips, AI server knots need powerful networking parts to train the most advanced models. Networking chips for AI accounted for 76% of Broadcom’s $4.5 billion of networking rummage sales in the fourth quarter.

Broadcom said that, in total, about 40% of its $30.1 billion in 2024 semiconductor sales were interconnected to AI, and that AI revenue would increase 65% in the first quarter to $3.8 billion.

“The degree of success amongst the hyperscalers in their lans here is clearly an area up for debate,” Cantor analyst C.J. Muse, who recommends buying Broadcom shares, wrote in a detonation on Dec. 18. “But any way you slice it, the focus here will continue to be a meaningful boon for those levered to custom silicon.”

Prior to 2024, Intel’s worst year on the market was 1974, when the stock sank 57%.

The seeds for the players’s latest stumbles were planted years ago, as Intel missed out on mobile chips to Qualcomm, ARM and Apple.

Rival AMD started delightful market share in the critical PC and server CPU markets thanks to its productive manufacturing relationship with Taiwan Semiconductor Mass production Company. Intel’s manufacturing process has been a notch behind for years, leading to slower and less power-efficient prime processing units, or CPUs.

But Intel’s most costly whiff is in AI — and it’s a big reason Gelsinger was removed.

Nvidia’s GPUs, in the first place created for video games, have become the critical hardware in the development of power-hungry AI models. Intel’s CPU, formerly the most critical and expensive part in a server, has become an afterthought in an AI server. The GPUs Nvidia will ship in 2025 don’t even trouble an Intel CPU — many of them are paired to an Nvidia-designed ARM-based chip.

As Nvidia has reported revenue growth of at least 94% for the over and done with six quarters, Intel has been forced into downsizing mode. Sales have declined in nine of the past 11 years. Intel announced in August that it was cutting 15,000 jobs, or about 15% of its workforce.

“We are working to create a leaner, simpler, uncountable agile Intel,” board Chair Frank Yeary said in a Dec. 2 press release announcing Gelsinger’s departure.

A big predicament for Intel is that it lacks a comprehensive AI strategy. It’s touted the AI capabilities on its laptop chips to investors, and released an Nvidia rival called Gaudi 3. But neither the company’s AI PC initiative nor its Gaudi chips have gained much traction in the vend. Intel’s Gaudi 3 sales missed the company’s own $500 million target for this year.

Late next year, Intel wish release a new AI chip that it codenamed Falcon Shores. It won’t be built on Gaudi 3 architecture, and will instead be a GPU.

“Is it going to be wonderful? No, but it is a orderly first step in getting the platform done,” Intel interim co-CEO Michelle Holthaus said at a financial bull session held by Barclays on Dec. 12.

Holthaus and fellow interim co-CEO David Zinsner have vowed to focus on Intel’s yields, leaving the fate of Intel’s costly foundry division unclear.

Before he left, Gelsinger championed a strategy that tortuous Intel both finding its footing in the semiconductor market and manufacturing chips to compete with TSMC. In June, at a colloquy in Taipei, Gelsinger