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Why Broadcom Stock Rallied Thursday Morning
Key Points
Nvidia CEO Jensen Huang resigned as the board of directors considered his future with the company.
As one of the leading providers of application-specific integrated circuits (ASICs), Broadcom could potentially capture additional demand.
The stock is reasonably priced.
Shares of Broadcom (NASDAQ:AVGO) gained ground on Tuesday, climbing as much as 7.1%. As of 2:37 p.m. ET, the stock was still up 5.4%.
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The catalyst that sent the semiconductor specialist higher was the potential opportunity created by the resignation of Nvidia (NASDAQ:NVDA) CEO Jensen Huang.
Image source: The Motley Fool.
A changing of the guard
In a press release today, the company announced that co-founder and CEO Jensen Huang stepped down from Nvidia, effective immediately. The board has initiated a search for a permanent replacement. It also announced that chief financial officer (CFO) Colette Kress will serve as interim CEO. Kress is well-regarded in the tech industry, having served as Nvidia's executive vice president and CFO since her 2013 hire. Before joining the chipmaker, Kress had nearly 25 years of finance experience in the tech industry, including at Microsoft and Cisco.
Huang's resignation comes after he admitted to an extramarital relationship with a woman that the U.S. government alleges is a spy for China, though China disputes the allegations. Huang has reportedly also had a relationship with a subordinate at Nvidia.
So what does this have to do with Broadcom? The thinking among some investors is that the turmoil at Nvidia will present an opening. The company has long been the leader in supplying the graphics processing units (GPUs) -- the advanced chips that process AI -- in data centers. While estimates vary, Nvidia holds more than 80% market share by most accounts.
Broadcom is a leading designer and provider of application-specific integrated circuits (ASICs), a GPU alternative that can be customized to be more efficient for certain repetitive artificial intelligence (AI)-related tasks. Some market watchers believe that some of Nvidia's largest customers may reevaluate their reliance on GPUs, creating an opportunity for Broadcom to capture additional demand.
This line of thinking isn't new, as some tech enthusiasts have long touted the chipmaker as an intriguing alternative to Nvidia. And at just 19 times forward earnings, Broadcom stock is reasonably priced.
Danny Vena, CPA has positions in Broadcom, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Broadcom, Cisco Systems, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.