Semiconductor firm Broadcom (AVGO) just launched a new networking chip called the Tomahawk Ultra, which is designed to help artificial intelligence systems transfer data faster between hundreds of connected chips. This release is one of Broadcom’s attempts to take on the current market leader, Nvidia (NVDA). Indeed, Broadcom already works with Alphabet’s Google (GOOGL) to build its AI chips, which are considered a strong alternative to Nvidia’s GPUs. However, the Tomahawk Ultra is specifically built to compete with Nvidia’s NVLink Switch chip, which has a similar use case.

Both Broadcom and Nvidia are focused on “scale-up” computing. This is a strategy where many chips are placed close together in order to work as one powerful system. Interestingly, though, Broadcom says that its chip has some major advantages. According to Ram Velaga, a senior VP at Broadcom, the Tomahawk Ultra can connect four times more chips than Nvidia’s version. It also uses an improved version of Ethernet instead of a proprietary data transfer method, which could make it more flexible and easier to integrate into existing systems.

This is important because it can save companies time and money, thereby potentially making it a more appealing choice. What is interesting about Broadcom’s new chip is that it took the firm’s engineers about three years to design and was originally intended for high-performance computing. However, the company shifted its focus once it saw that the generative AI market was growing very fast. It is also worth noting that Broadcom’s new chip is being produced by Taiwan Semiconductor Manufacturing Co. (TSM) using a 5-nanometer process, and is already being shipped.

Turning to Wall Street, analysts have a Strong Buy consensus rating on AVGO stock based on 28 Buys, two Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average AVGO price target of $299.23 per share implies 6.2% upside potential.

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