Investors who bought Meta Platforms (META) in recent weeks gained up to 38% from its 52-week low. The stock rallied further after the company’s chip design efforts with Broadcom (AVGO).
Meta will collaborate with Broadcom to produce several next-generation, custom artificial intelligence chips. This expands its prior deal. Meta needs to increase its computing capacity. It cannot risk falling behind the competition in acquiring chips that power its AI features.
The deal will extend the original agreement to 2029. Meta will get over one gigawatt of computing power.
Investors are dismissing earlier worries about its core business. Courts ruled against Meta and Alphabet’s (GOOG) YouTube. A California jury found that the two firms were liable for making an addictive platform that caused mental health issues for young users. Since Meta will appeal the case, the chances of thousands of pending suits winning against it are potentially lower.
Broadcom’s weekly gain of around 7% sets the stock up for a rally back to its all-time high of $414.61. Despite the stock trading at a premium price-to-earnings ratio of 33.15 times (forward), chip supply is not meeting demand. The industry will need more Broadcom chip designs to fuel the booming AI server markets.
On Tuesday, shares of AMD (AMD), Texas Instruments (TXN), and Qualcomm (QCOM) rose. NVIDIA (NVDA) added 3.8%, while Intel (INTC) fell by 2.1%.
