To The Moon

TMTPOST -- Shares of Broadcom Inc. settled 24.4% higher to $224.80 on Friday, hitting the highest close since the U.S. semiconductor developer and manufacturer went public in 2009. Shares skyrocketed and the market capitalization for the first time topped $1 trillion after the company suggested an explosive sales outlook driven by the artificial intelligence (AI) boom.

Credit：Broadcom

For the fiscal year 2027, Broadcom's total AI revenue will be at least $60 billion to $90 billion, CEO Hock Tan said on an earnings call late Thursday, noting that the range of serviceable addressable market (SAM) is a conservative estimate as it only includes revenue the company foresees from its existing three big hyperscaler customers.

The estimated revenue means the next three years will see  Broadcom’s AI revenue, from the application-specific integrated circuit (ASIC), or custom silicon, to networking chips, almost double each year. Tan reiterated his belief that each of the three hyperscalers will deploy 1 million clusters of its custom AI chips called XPUs by 2025.

In addition to three hyperscalers including Meta Platforms Inc., Alphabet Inc. and ByteDance Ltd., Broadcom also won new customers with XPUs. Broadcom confirmed that it has added two more hyperscaler customers who are “in advanced development for their own next-generation AI XPUs,” which could generate further revenue. It was reported that those new customers could be Apple and OpenAI. "We see our opportunity over the next three years in AI as massive," Tan told analysts.

Mizuho desk-based analyst Jordan Klein thinks Wall Street may be looking ahead and wondering if large technology players like Meta and Alphabet will "want and need more ASIC compute for [generative-AI] apps and workloads vs. costly GPUs," or graphics processing units (GPUs). Those are the kinds of chips Nvidia and AMD make. "Sure feels to me like custom silicon will quickly gain share each year from GPUs, albeit GPUs will be dominant for training purposes," Klein said.

Tan said AI products brought Broadcom $12.2 billion for the fiscal year 2024 ended November 3, 2024, representing an increase of 220% from a year earlier. "Broadcom's fiscal year 2024 revenue grew 44% year-over-year to a record $51.6 billion, as infrastructure software revenue grew to $21.5 billion, on the successful integration of VMware," said Tan. "Semiconductor revenue was a record $30.1 billion driven by AI revenue of $12.2 billion. AI revenue which grew 220 percent year-on-year was driven by our leading AI XPUs and Ethernet networking portfolio."

 Broadcom revenue rose 51% year-over-year (YoY) to $14.05 billion for the fourth fiscal quarter, roughly in line with analysts’ projection, and adjusted earnings per share (EPS) on non GAAP basis gained nearly 28% YoY to $1.42, beating estimated $1.38. Broadcom expected revenue for the current fiscal quarter to be $14.6 billion, matching analysts’ estimates.

Bernstein analysts hiked their price target on Broadcom to $250 from $195 following earnings. They wrote in a Friday note that there were a lot of nerves ahead of Thursday’s results, but Broadcom’s latest quarter earnings were “decent” and they were encouraged by management’s near-term and longer-term vision for AI. “Overall the AI story seems to really be coming into its own,” the analysts wrote.

Analysts at Bank of America reiterated their buy rating on the stock, partially owing to its surging AI opportunity. They admited Broadcom's dominance of the ASIC market for internal workloads, while cautioned that there is some risk from the “stiff competition against Nvidia’s stronghold in merchant silicon and enterprise customers.”

Morgan Stanley analysts believed Broadcom’s commentary around AI will likely add to long-term enthusiasm around the company. They expected Broadcom will be one of the most compelling ways to play AI semiconductor over the next two to three years. “Overall, the quarter itself will provide a relief vs. low nearer term expectations, and the longer term commentary around AI will stoke enthusiasm for custom AI chip longer term prospects — enthusiasm that was already at a fever pitch,” the analysts wrote in a Friday note.