Broadcom (NASDAQ: AVGO) became the eighth U.S. company to surpass a $1 trillion market capitalization, thanks to a 24% surge in its stock price on Friday.
Shares are up 107.11% year to date.
The rally follows the company’s forecast of a “massive” opportunity in artificial intelligence (AI) chip sales and its latest quarterly earnings report, which showed a 220% increase in AI-related revenue. ‘AI.
Broadqui?
Broadcom is a global semiconductor and infrastructure software company that designs and manufactures custom chips for data centers, smartphones, networking and consumer electronics. It also produces semiconductors used in electric vehicles and broadband communications.
The company has a long-standing relationship with Apple, supplying components for the iPhone, including wireless connectivity chips.
In addition to its hardware businesses, Broadcom has expanded into enterprise software through the acquisition of CA Technologies, the enterprise security division of Symantec, and, notably, VMware in a deal of $69 billion.
Broadcom underwent a significant transformation after its failed attempt to acquire Qualcomm for $120 billion in 2018 – a deal blocked by the Trump administration over national security concerns. Following this setback, Broadcom diversified and moved away from its reliance on semiconductors.
Income
Broadcom reported fourth-quarter revenue of $14.05 billion, an increase of 51% year over year. Net profit rose 23% to $4.32 billion from $3.52 billion a year earlier.
Adjusted earnings per share (EPS) for the quarter were US$1.42, beating analysts’ forecasts of US$1.39.
Broadcom’s move into infrastructure software has paid off. Quarterly revenue from infrastructure software jumped 181% year-over-year to $5.82 billion. Annual revenues in this segment increased from $7.6 billion in 2023 to $21.5 billion in 2024, accounting for 41% of total revenue.
The VMware integration was “ahead of schedule,” according to CEO Hock Tan, with operating margins of 70%. VMware’s quarterly costs were cut in half, from $2.4 billion to $1.2 billion.
Quarterly revenue in the company’s semiconductor division, which includes AI chips, rose 12% to $8.23 billion. However, quarterly semiconductor revenue excluding AI declined 23% to $4.5 billion, reflecting a broader industry slowdown.
The company’s annual AI chip revenue reached $12.2 billion, a 220% increase fueled by demand from hyperscale customers.
Tan revealed that Broadcom expects these customers, widely believed to include Alphabet, Meta and ByteDance, to deploy one million AI XPU clusters each by 2027.
Tan estimated that the “usable addressable market” for Broadcom’s AI hyperscale clients, believed to be OpenAI and Apple. .
Analyst reactions
Bank of America analysts reiterated their buy rating on Broadcom, raising their price target from $195 to $250. They cited Broadcom’s “growing AI opportunity” and noted that the company dominates the market for custom chips used for internal workloads at large technology companies.
Stacy Rasgon, a Bernstein analyst, joked that CEO Hock Tan “might look good in a leather jacket,” a nod to Nvidia CEO Jensen Huang’s iconic look while increasing Broadcom’s price target of $195 to $250. Analysts at Morgan Stanley said the company remains “one of the most compelling ways to play AI semis” over the next two to three years.
Not all analysts were optimistic. Raymond James analyst Srini Pajjuri maintained a Market Perform rating, citing the company’s valuation at 33 times its 2025 price-to-earnings ratio, which he described as a potential constraint on further stock market gains.
Market impact
The rise of Broadcom has impacted the semiconductor industry. The PHLX Semiconductor Index rose 3.4%, but Nvidia and AMD both declined, down 2.3% and 2.8% respectively. Analysts suggest that fund managers may have sold Nvidia to reallocate capital to Broadcom.
Unlike Nvidia, which makes GPUs off-the-shelf, Broadcom’s XPUs are highly customizable, a feature that appeals to hyperscale customers looking for greater efficiency. Mizuho analysts suggested that custom silicon, such as Broadcom’s XPUs, would gradually gain market share over GPUs, particularly for AI inference tasks.
Looking to the future
For the first quarter of fiscal 2025, Broadcom forecasts revenue of $14.6 billion, an increase of 22% year-over-year. AI revenue is expected to increase 65% to $3.8 billion, while non-AI semiconductor revenue is expected to decline by about $4.3 billion.
The company’s roadmap for new products includes next-generation XPUs built on a 3nm process, which are expected to debut in late 2025. Broadcom believes it will be the first to launch 3nm XPU products, which will give it an advantage in the AI computing market.
More broadly, the AI chip market is expected to grow 74% in 2025, according to data from International Business Strategies (IBS), far outpacing the 12% forecast growth for the broader semiconductor market. The demand for computing power from large language models (LLMs) like ChatGPT has pushed Big Tech to increase their spending. Alphabet, Amazon, Meta and Microsoft increased their combined capital spending by 18% last quarter, to $58.9 billion.
