Broadcom (NASDAQ: AVGO) has become the eighth US company to surpass a US$1 trillion market cap, driven by a 24% surge in its stock price on Friday.
Shares are up 107.11% year to date.
The rally followed the company's forecast of a "massive" opportunity in artificial intelligence (AI) chip sales and its latest quarterly earnings report, which showed a 220% rise in AI-related revenue.
Broadwho?
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 operations, Broadcom has expanded into enterprise software through acquisitions of CA Technologies, Symantec’s enterprise security division, and, notably, VMware in a US$69bn deal.
Broadcom underwent a significant transformation following its unsuccessful attempt to acquire Qualcomm for US$120bn in 2018—a deal blocked by the Trump administration over national security concerns. Following that setback, Broadcom diversified from a reliance on semiconductors.
Revenue
Broadcom reported US$14.05bn in revenue for the fourth quarter, a 51% year-on-year increase. Net income rose 23% to US$4.32bn, compared with US$3.52bn a year earlier.
Adjusted earnings per share (EPS) for the quarter was US$1.42, exceeding analyst forecasts of US$1.39.
Broadcom's shift to infrastructure software has paid off. Quarterly revenue from the infrastructure software revenue surged 181% year-on-year to US$5.82bn. Yearly revenue from this segment jumped from $7.6bn in 2023 to $21.5bn in 2024, accounting for 41% of total revenue.
VMware's integration has been "ahead of schedule", according to CEO Hock Tan, with operating margins at 70%. Quarterly costs for VMware halved from US$2.4bn to US$1.2bn.
Quarterly revenue from the company's semiconductor division, which includes AI chips, rose 12% to US$8.23bn. However, non-AI semiconductor quarterly revenue declined 23% to US$4.5bn, reflecting a broader industry slowdown.
Yearly revenue for the company's AI chips reached US$12.2bn, a 220% rise fuelled 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 "serviceable addressable market" for Broadcom's AI XPUs and associated networking gear could reach between US$60bn and US$90bn by fiscal 2027. He also noted that the company had added two new hyperscale customers, speculated to be OpenAI and Apple.
Analyst reactions
Analysts at Bank of America reiterated a buy rating on Broadcom, raising their price target to US$250 from US$195. They cited Broadcom’s “surging AI opportunity” and noted that the company dominates the market for custom chips used for internal workloads at major tech companies.
Stacy Rasgon, a Bernstein analyst, quipped that CEO Hock Tan "might look good in a leather jacket", a nod to Nvidia CEO Jensen Huang’s iconic look, while raising Broadcom’s price target from US$195 to US$250. Morgan Stanley analysts 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 bullish. 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 gains.
Market impact
Broadcom's rise sent ripples through the semiconductor industry. The PHLX Semiconductor Index rose 3.4%, but Nvidia and AMD both declined, down 2.3% and 2.8% respectively. Analysts suggested that fund managers may have sold Nvidia to reallocate capital to Broadcom.
Unlike Nvidia, which makes off-the-shelf GPUs, Broadcom's XPUs are highly customisable, a feature that appeals to hyperscale customers looking for greater efficiency. Analysts at Mizuho suggested that custom silicon, such as Broadcom's XPUs, will gradually gain market share from GPUs, particularly for AI inference tasks.
Looking ahead
For the first quarter of fiscal 2025, Broadcom expects US$14.6bn in revenue, representing a 22% year-on-year increase. AI revenue is forecast to jump 65% to US$3.8bn, while non-AI semiconductor revenue is expected to decline by "mid-teens" to around US$4.3bn.
The company's roadmap for new products includes next-generation XPUs built on a 3nm process, set to debut in late 2025. Broadcom believes it will be the first to launch 3nm XPU products, giving it an edge in the AI compute market.
More generally, the AI chip market is set to grow 74% in 2025, according to data from International Business Strategies (IBS), far outpacing the projected 12% growth for the broader semiconductor market. The demand for compute power from large language models (LLMs) like ChatGPT has driven Big Tech to boost spending. Alphabet, Amazon, Meta, and Microsoft increased their combined capital expenditure by 18% last quarter, reaching US$58.9bn.
