Broadcom Inc. (AVGO) shares soared more than 20% on Friday after the company outlined its significant opportunity in the artificial intelligence (AI) market during its quarterly earnings call on Thursday evening.
CEO Highlights Massive AI Market Opportunity
Broadcom CEO Hock Tan announced that the company expects its custom AI chips to generate $60 billion to $90 billion in revenue over the next three years. These projections stem from the deployment of 1 million clusters of Broadcom’s custom AI chips, known as XPUs, by its three existing hyperscaler customers by 2025. Tan also revealed that two additional hyperscaler customers are in advanced development stages for their own next-generation AI XPUs, potentially adding further revenue.
Potential Collaborations with OpenAI and Apple
Media reports have suggested that the new hyperscaler customers could include OpenAI, the maker of ChatGPT, and Apple Inc. (AAPL). Apple is reportedly partnering with Broadcom to develop an AI server chip aimed at reducing reliance on Nvidia’s (NVDA) GPUs, a strategy OpenAI is also reportedly pursuing.
Broadcom Achieves Milestones
Broadcom’s stock surged to an all-time high of $221, marking a 98% gain for the year. The company’s market capitalization surpassed $1 trillion, a historic milestone fueled by its expanding AI chip business.
Strong AI Chip Growth Amid Mixed Semiconductor Performance
In its fourth quarter, Broadcom reported semiconductor revenue of $8.2 billion, a 12% increase from last year. AI chip sales grew 150% to $3.7 billion, while non-AI semiconductor revenue declined 23% to $4.5 billion.
“The reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business,” Tan stated during the earnings call.
Broader AI Chip Market Trends
The AI chip market is projected to grow by 74% in 2025, significantly outpacing the overall semiconductor market’s expected growth of 12%, according to consulting firm International Business Strategies (IBS). The accelerator chip market is forecasted to continue outperforming the sector through 2030.
Analyst Reactions
- Stacy Rasgon, Bernstein:
Rasgon described Broadcom’s earnings as “decent,” with adjusted earnings per share of $1.42 beating analyst forecasts of $1.39 and revenue of $14.1 billion aligning with expectations. Rasgon raised his price target to $250 from $195 while maintaining an Outperform rating. - Srini Pajjuri, Raymond James:
Pajjuri expressed caution about Broadcom’s valuation, noting that it trades at 33 times its projected 2025 price-to-earnings ratio. He maintained a Market Perform rating, stating he is “reluctant to chase the stock at current levels.”
Challenges Ahead
Despite Broadcom’s strong AI prospects, questions remain about the sustainability of Big Tech’s AI investments. Companies like OpenAI have reported substantial losses, and adoption of AI technologies among U.S. workers remains limited. Broadcom’s ability to capitalize on the AI chip market while navigating these challenges will be critical in maintaining its momentum.
