Shares of Chip Gaint Broadcom (AVGO, Financial) saw about a 3% surge on Wednesday afternoon after investment firm Daiwa Securities upgraded its rating to Buy, citing the chip maker's strong positioning in artificial intelligence.

Daiwa highlighted several growth drivers, including a robust application-specific integrated circuit and XPU business. The firm noted an expansion of core customers from three to seven. It explained that specialized ASIC processors offer cost and power efficiencies for AI training and inference, attracting major tech players, including Google and Meta (META, Financial).

Broadcom's networking segment is also expected to benefit as AI data centers expand, while its strategic VMware acquisition should boost growth, margins, and cash flow. Analysts, however, remain cautious given potential tariffs, emerging regulatory rules, and a possible downturn in the AI market.

Despite giving a Buy rating, Daiwa has adjusted its price target to $225, down from $275, reflecting current valuations and expectations for a broader semiconductor market rebound.