Why AI Chip Stocks Broadcom, Marvell, and Arm Holdings Rallied Again Today

Shares of artificial intelligence (AI) chipmakers like Broadcom (NASDAQ: AVGO), Marvell Technology (NASDAQ: MRVL), and Arm Holdings (NASDAQ: ARM) rallied on Monday. At one point, they were up by 4%, 4.4%, and 5.4%, respectively. As of 1:26 p.m. ET, their gains had moderated to 1.2%, 1.7%, and 4.9%, respectively.

AI-related chip stocks sold off a bit during the last couple of weeks of 2024, but they got a lift Friday on signs of strong AI chip demand. Then on Monday, another data point emerged that bodes favorably for the near-term outlook of the AI sector.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Foxconn's blowout monthly revenue

On Monday morning, Hon Hai Precision (OTC: HNHPF), also known as Foxconn, released its latest monthly revenue figures. Of note, Foxconn is one of the world's largest electronics assemblers, as it assembles the iPhone. But it also has significant businesses in electric vehicles and, most importantly for this discussion, AI servers.

Foxconn reported massive year-over-year growth of 42.3% in December, its highest figure of any month last year. Furthermore, the company noted its growth was primarily due to high demand for AI servers.

This is an indicator that AI chip demand will remain robust despite the hypergrowth of the past two years. The news dovetailed nicely with a blog post published by Microsoft (NASDAQ: MSFT) on Friday in which it said that it would spend upwards of $80 billion on AI data centers this fiscal year.

Foxconn's December surge may reflect the availability of Nvidia's (NASDAQ: NVDA) new Blackwell chip. The rollout of that hardware had been delayed, but production was supposed to ramp up in late Q4. Of note, Arm licenses its architecture to Nvidia and other cloud giants for their data center CPUs, which often accompany Nvidia GPUs or custom accelerators in AI servers. So, a steepening ramp-up in production of Nvidia Blackwell systems would benefit Arm. Arm also tends to be among the most volatile AI stocks, so it's perhaps not a surprise to see it having strong gains.

While Nvidia and adjacent stocks surged Monday, the Foxconn news was a positive for Broadcom and Marvell as well. These two companies have a nice duopoly as makers of custom accelerator parts that the cloud computing giants incorporate into their own AI accelerator designs. With cloud companies all investing heavily in developing and producing their own chips to cut costs, shares of Broadcom and Marvell have soared.

Foxconn also makes "white label" server components for large cloud companies, which often assemble its subsystems and systems into their own proprietary server designs. So the boom in Foxconn orders actually bodes well not only for Nvidia, but also for Broadcom and Marvell.

In 2024, Broadcom rose by 110%, Marvell gained 84%, and Arm was up 64% -- all stellar results. However, there is a lot of optimism reflected in their valuations. This perhaps helps explain why, in the wake of their Monday morning surges based on Foxconn's bullish AI demand indicator, the stocks fell back to more reasonable gains.

Strong demand, lofty valuations

2025 will be an interesting year for the AI winners of 2023 and 2024. On the one hand, the AI infrastructure buildout doesn't show any signs of letting up. On the other hand, AI winners such as these three are trading at quite full valuations, with Broadcom valued at 37 times this year's earnings estimates, Marvell at 44 times, and Arm at 71 times.

At those levels, these stocks are a tad risky in the near term. Should there be any hint of an AI growth slowdown at all relative to expectations, their prices could slide. Still, it's hard to see anything but positive news for these three companies over the medium term, as long as the cloud giants continue racing to achieve a better and better AI.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $374,613!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $46,088!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $475,143!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of January 6, 2025

Billy Duberstein and/or his clients have positions in Broadcom and Microsoft. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.