Citigroup lowers NVIDIA's target price: Broadcom's TPU poses a substantial threat to GPU

According to news from the Chasing Wind Trading Platform, Broadcom's deepening collaboration with major tech companies in the AI chip sector poses a substantial threat to NVIDIA's GPU business. Citigroup analysts have lowered NVIDIA's target price to $200 due to intensified competition from TPUs (Tensor Processing Units, used to accelerate machine learning), expecting a reduction of approximately $12 billion in GPU sales by 2026.

Citigroup analysts stated that Broadcom's XPU (a general term for various processing units, including TPU, DPU, CPU, etc.) business accelerated growth last week, primarily driven by both new and existing customers, reflecting that companies like Google are shifting from indirect competition with NVIDIA to directly providing computing power services as its competitors. This strategic shift could reshape the AI chip market landscape.

Despite lowering expectations, Citigroup analysts maintain a buy rating on NVIDIA, believing that the revised expectations for the 2025/26 fiscal year are still 2%/5% higher than the market consensus.

Last Friday, the U.S. stock market showed a mixed pattern, with Broadcom's stock soaring due to news of a deep collaboration with OpenAI, while NVIDIA's stock fell due to competitive concerns, with the market currently focused on changes in the competitive landscape of the AI chip sector.

XPU market growth will surpass GPU, but GPU will still dominate the AI computing market

Citigroup expects:

The XPU market will achieve a 53% year-on-year growth by 2026, significantly surpassing the AI GPU sales growth rate of 34%. This growth is primarily driven by capacity ramp-up from Google, Meta, and Amazon.

Analysts expect that GPU sales will decrease by approximately $12 billion by 2026 (with Meta contributing about $2 billion to the reduction in GPU sales, and the remaining approximately $10 billion impact coming from other customers shifting to XPU solutions). This poses about a 5% impact on NVIDIA's previous forecast of $232 billion in commercial GPU sales for 2026.

Despite facing intensified competition from XPUs, Citigroup believes that GPUs will continue to maintain a dominant position in the AI computing market, with sales accounting for over 85%. Analysts noted that the revised expectations do not include factors from the Chinese market. If NVIDIA resumes GPU shipments to China in the future, it could provide additional upside potential for its performance.

The new target price of $200 is based on a 30 times price-to-earnings ratio multiplied by the revised earnings per share for 2026. Analysts emphasize that despite competitive pressures, NVIDIA's core position in the AI chip sector is unlikely to be shaken in the short term