Broadcom's AI Chip Business Propels Company to $1 Trillion Valuation

This chip play is up more than 40% in December, and its dividend is growing

A chip stock that's been on a tear lately is offering investors a healthy combination of price appreciation and income. Broadcom has been in the shadow of semiconductor giant and artificial intelligence darling Nvidia this year, but December has been kind to the smaller chip company. Broadcom shares are up about 40% this month alone, while Nvidia is down about 4%. AVGO 1M mountain Broadcom shares over the past month This month's gains, bolstered by solid fiscal fourth-quarter earnings and a strong outlook tied to AI, have also propelled Broadcom into the league of companies with a trillion-dollar market capitalization . The company reported adjusted earnings of $1.42 per share on revenue of $14.05 billion, while analysts called for earnings of $1.38 per share and $14.09 billion in revenue, per LSEG. Guidance key The real key to the report, however, was the forward financial guidance, according to Charles Gaffney, managing director at Morgan Stanley Investment Management and portfolio manager of the Eaton Vance Dividend Builder Fund (EIUTX) . Broadcom was the second-largest holding in the fund, as of Oct. 31 . Indeed, Broadcom CEO Hock Tan said that the total market for its artificial intelligence chips and components for AI networking could range between $60 billion and $90 billion by 2027. "We see our opportunity over the next three years in AI as massive," he said on the company's earnings call, noting that Broadcom is working with three hyperscale customers. Tan said he expects each of these customers will deploy 1 million AI chips in networked clusters by 2027. Tan's guidance shows that "the runway for opportunities and growth is extremely sizable and strong," said Gaffney. "That looks like a strong fundamental case that that business should continue to do extremely well over the coming years," Gaffney added. "And, historically, Broadcom has been a great dividend story." Dividend grower As evidence, the company hiked its quarterly dividend by 11% to 59 cents a share for the 2025 fiscal year. It marks the 14th consecutive increase in annual dividends since the company initiated the payments in fiscal 2011. "That setup looks very good from a dividend growth perspective," Gaffney added. "It's tough to find a quality company that grows its dividend at that clip and maintains a strong secular outlook like they have." Broadcom's dividend yield currently stands at 1%, but for tech names - particularly those that have just started issuing payments this year - the key is to provide sustainable dividends and grow them over time. This ultimately rewards long-term investors who buy and hold shares, especially if they reinvest the dividend. "The AI theme is becoming more of a secular growth story in the marketplace," Gaffney said. "[Broadcom] is one of the names in the tech space that gives you the best of both worlds that you're seeing here: great capital appreciation, and it offers a dividend and dividend growth." -- CNBC's Kif Leswing contributed reporting.

Broadcom Joins the $1 Trillion Club: Is This Growth Stock a Buy Before the End of the Year?

The tech giant's market cap just rose by more than $200 billion in a single day. Nvidia (NVDA -1.22%)led the semiconductor industry and the tech sector to new heights in 2023 and 2024. The chipmaker embodied the breakneck pace of growth in the artificial intelligence (AI) sector, and has been trading the crown of most valuable company in the world with Apple and Microsoft. But it is far from the only chip stock that is putting up monster gains. After reporting its fiscal 2024 fourth-quarter (ended Nov. 3) results on Dec. 12, Broadcom (AVGO -3.91%) surged by 24.4% on Dec. 13 to a new all-time high and a market cap of $1.05 trillion. The stock has more than doubled year-to-date and is now up by more than 600% during the past five years. In fact, Nvidia is up just 1% during the past six months, while Broadcom has surged by about 44% (as of Dec. 16). Here's what you need to know about the tech giant's results, where it could be headed, and if this growth stock is worth buying before 2025. A primer on Broadcom Broadcom is in the business of global connectivity. It provides hardware and software solutions for cloud infrastructure, data centers, networking, broadband, wireless, storage, industrial applications, enterprise software, and more. The company makes equipment for advanced ethernet switching, which it believes will be in higher demand from hyperscalers like Amazon Web Services. Another big opportunity for Broadcom is application-specific integrated circuits (ASICs) for data centers. It has a majority share of the ASIC market, which could see surging demand as businesses look for lower-cost alternatives to Nvidia's GPUs. Broadcom is unique because it has an integrated portfolio of products across the data center value chain, including network, server, and storage connectivity. It's thus a catch-all way to play the need for increased connectivity and AI. Blowout results The rises of cloud computing, infrastructure, and AI have transformed Broadcom from a value-focused company to a high-octane growth stock. Its market cap surged due to increased demand from these industries. The following chart shows the company's margin expansion and its revenue growth, which is up nearly eightfold during the past decade and a whopping 44% in fiscal 2024 compared to fiscal 2023. The recent narrowing in margins is largely due to the adjustments related to Broadcom's purchase of VMware and because it is investing heavily in innovation, not due to price sensitivity. AVGO Operating Margin (TTM) data by YCharts. Management sees the momentum carrying forward into fiscal 2025, forecasting first-quarter revenue of $14.6 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $9.64 billion. If it hits those targets, its revenue would increase by 22% year over year and adjusted EBITDA by 35%. Since the acquisition of VMWare somewhat inflated Broadcom's fiscal 2024 results, its fiscal 2025 growth will provide a more accurate reading of the company's post-acquisition growth rate. Broadcom's transformation Broadcom closed on its blockbuster purchase of VMware in early fiscal 2024. The deal boosted its position in software, cloud, and data centers, but there were questions about how fast it could integrate the organization. On the recent earnings call, management said that the integration of VMware was largely complete, and it is ahead of schedule on its sales and earnings growth. Chief Executive Officer Hock Tan attributed the integration of VMware and AI growth as the two significant drivers of Broadcom's transformations in fiscal 2024: Our AI revenue, which came from strength in custom AI accelerators or XPUs and networking, grew 220% from $3.8 billion in fiscal 2023 to $12.2 billion in fiscal 2024, and represented 41% of our semiconductor revenue. This drove semiconductor revenue up to a record $30.1 billion during the year. AI has emerged as a key driver of semiconductor revenue, now Broadcom's largest segment by revenue, with momentum continuing in the near term. But that news alone likely wouldn't have resulted in the more than $200 billion pop in Broadcom's market cap in a single session. That pop more likely came because of management's three-year forecast. Broadcom sees its three big hyperscale customers developing their own customer AI accelerators or XPUs over a multiyear period to represent a serviceable addressable market of $60 billion to $90 billion by fiscal 2027. Broadcom expects to dominate that market, and anticipates that its AI-driven semiconductor business will eclipse its non-AI semiconductor business in the near future. If it meets its targets, it would be the equivalent of Apple releasing a new product that became bigger than the iPhone in just five years. Expectations are high Not long ago, it was easier to value Broadcom based on its trailing earnings and its growing dividend (which it just raised by 11%). But given how much the business has changed in a short amount of time, it is entering a new territory -- valuation expansion. Valuation expansion occurs when investors are optimistic about a company's growth and are willing to value it based more upon its expected future earnings than on those of its recent past. Analysts' average expectations are for Broadcom's earnings to soar in the coming year, so the stock only sports a forward price-to-earnings ratio of 36. That's surprisingly cheap for a stock that doubled during the past year and is up more than sevenfold in the past five years. But projections can differ from results, especially in the highly cyclical semiconductor industry. Broadcom's valuation is being put to the test The investment thesis for Broadcom used to be that it was an established network connectivity business that was well-positioned to monetize AI. But in just one year, the company caught Wall Street off-guard by essentially stating that the AI-related semiconductor segment will become its largest. This fundamental change is reminiscent of the evolution of Nvidia -- its graphics segment used to be bigger than its data center business, but now, the data center business accounts for 85% of revenue. Broadcom remains an excellent buy if you believe in management's vision for capturing hyperscaler spending on AI. If it comes even close to its medium-term targets, future investors will likely be looking back on the current share price as a good value. However, the stock could also sell off big time if an industrywide downturn occurs or if its forecasts are too optimistic. After all, management warned that the ramp-up in hyperscaler investment will not be linear, with outlays potentially varying widely from quarter to quarter. Therefore, investors should take care to weigh the risks and potential rewards before jumping into Broadcom after its recent run-up. Some may want to wait and see how the hyperscalers' infrastructure ramp-up plays out. Today, the stock is priced for results that are close to perfection, but if there are hiccups along the way, it could come down to a more attractive valuation.

AI boom sends Broadcom soaring to $1 trillion market cap

Broadcom (AVGO) has emerged as a leading player in the semiconductor industry, recently surpassing a market cap of $1 trillion. The company reported a significant 118% increase in its stock value this year, largely fueled by advancements in artificial intelligence (AI) technologies. This growth could position Broadcom to end 2024 on a strong note. Broadcom's strong performance has not reached the heights currently seen with Nvidia (NVDA), but a transformative shift in the AI-chip marketplace may bolster Broadcom's prospects. During the Q4 earnings call, CEO Hock Tan disclosed ambitious revenue forecasts for the next two years, reflecting the changing dynamics within the AI chip sector. The rise of specialized chips, particularly eXtreme Processing Units (XPUs), is altering the competitive landscape, moving attention away from Nvidia's general-purpose GPUs. Broadcom stock climbs 13%: The AI boom investors can't ignore The heightened demand for chips has principally benefited Nvidia over the past two years, as it remains the dominant provider for companies developing large language models (LLMs). Nvidia's GPUs are integral to numerous AI systems due to their unmatched processing power and efficiency. Until now, no competitor has successfully produced GPUs that can rival Nvidia's performance. However, Tan pointed out that the industry may be favoring custom silicon solutions like Broadcom's XPUs, which cater more directly to specific, high-performance use cases, particularly in AI and machine learning. XPUs, unlike traditional GPUs, are specially designed to handle distinct computing tasks effectively. Broadcom's Q4 report indicates that these specialized chips might be gaining momentum over their generalist counterparts, as businesses begin favoring these tailored solutions. Tan's projections for Broadcom's AI and AI networking markets suggest a revenue potential of $60 billion to $90 billion by 2027, a remarkable increase from the previous year's estimate of $15 billion to $20 billion. Tan attributes Broadcom's strong AI prospects to its custom XPUs and AI networking solutions, mentioning a growing number of hyperscalers adopting these innovations. "Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs," Tan stated, pointing to partnerships with major cloud computing entities like Amazon Web Services, Google Cloud, and Microsoft Azure. He also noted that Broadcom is currently working with two additional hyperscalers to develop next-generation AI XPUs. These developments raise questions about Nvidia's market position amidst Broadcom's ascendancy. A July 2024 report from All About Industries examined the implications of such shifts, noting that both custom silicon chips, such as XPUs and Application Specific Integrated Circuits (ASICs), have appropriate functions within the ecosystem. Despite concerns regarding Nvidia's dominance, industry experts indicate that both XPUs and GPUs could find their place in a diversified market. Ophir Gottlieb, CEO of Capital Market Laboratories, remarked on the complementary relationship between the two types of chips. "I think one type bolsters the demand for the other, and it's a sort of a reinforcing cycle," he told to The Street. He emphasized how companies that operate AI platforms on their proprietary software often benefit from building chips designed to work specifically with those systems. "When you have a custom software layer, you build the chips specifically to function with that software. And that's why it's more effective, it's more efficient," Gottlieb explained. Broadcom's recent Q4 earnings report reflects its success in capturing hyperscaler-specific workloads with its custom silicon. The company's shares soared by 11% following its impressive earnings results, bringing their annual increase to 126%. Now priced at $250, Broadcom stands in contrast to Nvidia's gains of over 165% this year, with Nvidia's market cap reaching approximately $3.2 trillion. Broadcom's growth can also be attributed to a dramatic increase in AI-related revenue, which reportedly surged 220% to $12.2 billion. Profitability is further bolstered by recent price target adjustments from Wall Street analysts. Goldman Sachs has raised its 12-month target for Broadcom shares to $240 from $190, while Barclays and Truist have also revised their expectations upward. These analysts highlight the effectiveness of Broadcom's management and its strategic acquisitions, particularly the $61 billion takeover of VMware completed in 2023. Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

Broadcom Shares Surge as It Adds More Custom AI Chip Customers. Can the Momentum in the Stock Continue? | The Motley Fool

Broadcom (AVGO 11.21%) shares were skyrocketing higher after the company reported record revenue in its fiscal fourth quarter, ended Nov. 3, and said it was developing custom artificial intelligence (AI) chips for a number of large customers. The surge in share price brought the stock's gains up to more than 100% for the year to date. Let's take a closer look at the company's most recent results and commentary to see if the momentum in the stock can continue. More than its results, it was the commentary from Broadcom CEO Hock Tan that got investors excited and helped push the stock higher. He said each of its big-three "hyperscaler" customers (those owning massive data centers) was planning to deploy 1 million XPU (AI chip) clusters by 2027. Including XPUs and networking equipment, Broadcom's addressable market among these three customers could be between $60 billion to $90 billion in fiscal 2027 alone. In addition, Tan said two additional hyperscaler customers were in advanced development of their own artificial intelligence (AI) chips, which could significantly increase the addressable market. Tan said that Broadcom plans to turn these companies into revenue-generating customers by fiscal 2027. Apple could be one of these new customers as it was recently reported that the iPhone maker was working with Broadcom on a new AI server chip, code-named Baltra, to help run its AI applications in the cloud. According to the reports, the company is looking to have the chip design completed within the next year. Turning to Broadcom's results, revenue surged 51% to $14.05 billion in the quarter, but was up just 11% when excluding the contributions from its acquisition of VMware, which it acquired in November 2023. That was actually just below analyst estimates looking for revenue of $14.09 billion, as compiled by the London Stock Exchange Group. Semiconductor solutions revenue increased 12% year over year to $8.2 billion. Within the segment, networking revenue led the way, soaring 45% to $4.5 billion, with custom AI networking revenue surging 158%. Wireless revenue rose 7% year over year to $2.2 billion due to higher content. It has been rumored that Apple will be moving away from Broadcom for its own in-house bluetooth and Wi-Fi chip although the company said it continues "to be very engaged with this customer in multi-year road maps across various technologies we have leadership in, including RF, Wi-Fi, bluetooth, sensing, and touch." Broadcom said that server storage-connectivity revenue has risen 20% from the bottom it hit six months ago to $992 million and that it expects it to continue to grow. Broadband revenue plunged 51% to $465 million, but Broadcom thinks this area has now bottomed, as it saw some big orders in the quarter. Industrial sales, which sank 27%, is only about 1% of its revenue at $173 million. The company is looking for a recovery in the second half. Moving to its infrastructure software segment, revenue climbed 196% to $5.8 billion largely due to the VMware acquisition. Revenue was flat sequentially, as the company said some deals slipped into the first quarter. As a result, it is looking for software revenue to rise 41% year over year and 11% sequentially in the first quarter. Looking at profitability, adjusted earnings per share (EPS) in the quarter rose from $1.11 to $1.42, adjusting for its previous 10-for-1 stock split. That was ahead of the $1.38 analyst consensus. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 65% year over year to $9.1 billion. Broadcom generated $5.6 billion in cash flow from operations and $5.5 billion in free cash flow in the quarter, while for the year it had $20 billion in operating cash flow and $19.4 billion in free cash flow. It finished its fiscal year with nearly $19.3 billion in cash and equivalents, and $67.6 billion in debt stemming from its earlier $69 billion acquisition of VMware. On the guidance front, the company forecast fiscal Q1 revenue of approximately $14.6 billion -- just ahead of the $14.57 billion consensus -- and would represent about 22% growth. Management expects adjusted EBITDA to be about 66% of revenue, or about $9.6 billion. Broadcom's fiscal Q4 results were solid but not spectacular, with revenue growth of just 11% when taking out the boost it got from its earlier VM acquisition. Meanwhile, fiscal Q1 revenue guidance basically fell in line with analyst expectations. That is usually not the type of results that see a stock surge unless it was beaten down and expectations were low, which was clearly not the case with Broadcom, whose stock has been a strong performer this year ahead of the report. However, investors are clearly excited about the custom AI opportunity in front of the company, which appears quite substantial as it draws in more customers. As companies are looking for alternatives to Nvidia's graphics processing units (GPUs) to help avoid the company becoming too powerful, developing custom chips through Broadcom seems to be becoming a preferred strategy. That said, there also needs to be some caution when it comes to Broadcom's commentary. The first is that obviously some of the addressable market that Hock Tan talked about is still going to go toward Nvidia's GPUs. Second, one of these customers is presumably ByteDance, which is seeing the possibility that TikTok could be banned in the U.S. That puts a lot of doubt into how this customer may ramp up its AI chip spending. After the surge in its price, Broadcom now trades at a forward price-to-earnings (P/E) ratio of under 30. That's higher than where it has traded at in the past several years although investors are clearly baking in some future accelerated growth. I continue to like Broadcom's AI opportunities, but after this latest big jump in in its stock price, I would consider holding back on chasing the stock. There are still questions around potentially losing some Apple business as well as what happens with TikTok, which could impact ByteDance and the ramp of its custom chips.

History Says the Nasdaq May Soar in 2025: 1 Stock-Split AI Stock to Buy Ahead of the New Year | The Motley Fool

The Nasdaq Composite (^IXIC -0.32%) has advanced 34% year to date, and history says that momentum may carry into 2025. Since its inception in 1971, the Nasdaq has returned at least 20% in 20 years, and at least 30% in 12 years. After those performances, the index typically generated strong returns in the next 12 months, as detailed below: In short, if the Nasdaq returns at least 30% this year, history says the index will add another 19% next year if its performance aligns precisely with the average. Of course, past results never guarantee future performance. But there is no in harm leaning into trends, so long as the goal is long-term capital appreciation. With that in mind, Broadcom (AVGO -3.91%) completed a 10-for-1 stock split in 2024 after substantial share price appreciation, but 85% of Wall Street analysts that follow the company still rate the stock a buy. Broadcom breaks its business into two segments: semiconductor solutions and infrastructure software. It earns semiconductor revenue by developing chips for Ethernet networking, server and storage connectivity, and mobile devices. The company also builds custom artificial intelligence (AI) chips for select customers. Meanwhile, Broadcom earns software revenue from mainframe, cybersecurity, and virtualization products. The bad news is that Broadcom's legacy businesses -- think mainframe software and non-AI semiconductors -- are expected to grow relatively slowly. The good news is Broadcom has a strong presence in several high-growth industries: It is the leader in Ethernet switching and routing chips, and custom AI chips. Specifically, the company has 80% market share in data center networking chips, and 60% share in custom AI accelerators, according to analysts. AI accelerator spending is projected to increase at 29% annually through the decade's end, according to Grand View Research. That number includes graphics processing units (GPUs) from Nvidia, and custom AI chips from companies like Broadcom and Marvell. But custom AI silicon sales are expected to outpace (but not overtake) GPU sales during that period. That bodes well for Broadcom given its market dominance. In software, Forrester Research has recognized Broadcom subsidiary VMware as a leader in hyperconverged infrastructure (HCI), a technology that virtualizes data center compute, storage, and networking. HCI lets businesses manage IT infrastructure more efficiently across on-premises data centers and hybrid clouds. The HCI market is expected to grow at 23% annually through 2030, according to Grand View Research. Broadcom reported reasonably good financial results for the fourth quarter of fiscal 2024, which ended in November. Revenue increased 51% to $14 billion, though the acquisition of VMware (which occurred in the first quarter) contributed 40 percentage points to growth. In other words, organic revenue increased 11%. Meanwhile, non-GAAP net income increased 28% to $1.42 per diluted share. However, management's commentary sent shares soaring following the report. Broadcom currently designs custom AI chips for three hyperscale companies -- reportedly Alphabet, Meta Platforms, and TikTok parent ByteDance -- and management expects revenue from those customers to reach $60 billion to $90 billion in fiscal 2027. That represents at least fivefold growth from the current base of $12.2 billion in fiscal 2024. Additionally, CEO Hock Tan told analysts on the fourth-quarter earnings call that two more hyperscalers are likely to become customers in the near future. He did not provide names, but several analysts suspect they are Apple and OpenAI. Any revenue from those customers would be in addition to the range previously provided, meaning Broadcom could see a massive increase in AI chip sales in the next three years. Looking ahead, Wall Street expects Broadcom's adjusted earnings to increase at 21% annually through fiscal 2027. That makes the current valuation of 51 times adjusted earnings look expensive, but patient investors comfortable with risk can still buy a small position today. I say that because forward earnings estimates do not account for potential customers like Apple and OpenAI, which means Broadcom's earnings may increase more quickly than analysts anticipate. And upward earnings revisions tend to drive share price appreciation.

Is Broadcom a Buy? | The Motley Fool

Broadcom's stock exploded after its recent earnings on Dec. 12, based on forecasts for massive AI-related revenues over the next few years. But after its year-to-date gains of just over 100%, the company recently clearing the $1 trillion market cap milestone, and trading at 46 times its trailing adjusted EPS, is there still a buying opportunity in this stock? In order to assess Broadcom's prospects in relation to its valuation, one has to dissect its product portfolio, which spans both semiconductor and software products. The most exciting segment is Broadcom's AI semiconductor portfolio, which consists of custom AI accelerators, or "XPUs," which enable third parties to design their own AI accelerators, as well as its leading data center networking chips. The rest of Broadcom's chip portfolio consists of profitable but lower-growth broadband, telecom, and mobile chipsets. Broadcom also has several infrastructure software franchises, including VMware, which Broadcom purchased a year ago for about $69 billion. While software has become more important, at 41% of revenue last quarter, the biggest growth driver in the years ahead will be the company's AI chips, which we'll look at in more detail below. While Broadcom's overall results were just OK last quarter, on the conference call with analysts, CEO Hock Tan dropped a bomb: By 2027, Broadcom's addressable market at its three main XPU customers will grow to between $60 billion and $90 billion, up from just $12.2 billion in AI chip revenue in fiscal 2024. With that outlook, investors quickly increased their estimates of Broadcom's earnings per share in the future. Not only that, but Tan also hinted there could be two other large companies that may potentially design their own XPUs with Broadcom's IP. That could even add to his projection. Broadcom made just over $30 billion in total semiconductor revenue in its recently completed fiscal year, leaving $17.8 billion in non-AI chip revenue. Assuming that grows 5% annually through 2027, consistent with the mid-single-digit long-term growth projected by management, those franchises would yield about $20.6 billion in non-AI chip revenue by 2027. In software, Broadcom made $21.5 billion in fiscal 2024, with VMware making up about half of that. Non-VMware software is a slow-growth segment, but VMware has been growing fast while under Broadcom's control, posting 10% quarter-over-quarter growth. While VMware will probably decelerate, this should still be a moderate growth segment. A reasonable annualized growth rate for software would be about 10% through 2027, reaching $28.6 billion by that time. Putting all of these segments together, investors can start getting a sense of the big numbers Broadcom may post in 2027. Using the above assumptions and the above-midpoint assumption for AI chip guidance, we get: Broadcom is also an extremely high-margin business. Last quarter, the company's adjusted operating margins on its semiconductor business was a whopping 56%. Not to be outdone, Broadcom's software operating margins were an eye-watering 73%, excluding VMware transition costs. Assuming no margin expansion between now and 2027, those margins on 2027 revenue would yield a semiconductor operating profit of $56.3 billion and a software operating profit of $20.9 billion, for a total of roughly $77 billion. Assuming $4 billion in interest expense, which is what Broadcom had last year on its $67.5 billion in debt, and a 15% tax rate projected for 2025, that total yields a 2027 adjusted net income for Broadcom of roughly $62 billion. Some may have balked at Broadcom's ascension to clear $1 trillion in market value after earnings, but if these growth projections come to pass, that would basically put the stock at a 17 P/E multiple on those 2027 earnings figures. It's also possible Broadcom could outperform those numbers. Under Hock Tan, the company has a history of beating its projections on a regular basis. Furthermore, getting additional AI XPU and networking customers could very well push AI chip revenue past the $90 billion high-end of guidance. Furthermore, Broadcom generated $21.9 billion in free cash flow last year, and will likely make more than that in 2025 and 2026. With that cash, the company could pay down its debt, leading to lower interest expense, or make more acquisitions. Broadcom was built on a sophisticated M&A strategy that has worked brilliantly to date. So with the ability to expand further into either semiconductors or software in the age of AI, it wouldn't be surprising to see the company make another value-enhancing acquisition. Taking that path to 2027 into account, Broadcom is still a reasonable buy today, even after this massive run.

Meet Wall Street's Newest $1 Trillion Artificial Intelligence (AI) Stock -- but Don't Rush to Buy It Just Yet | The Motley Fool

Up until the market opened on Friday, Dec. 13, America was home to seven technology companies worth $1 trillion or more: However, an eighth company just joined the ranks. Broadcom (AVGO 11.21%) stock surged 24% last Friday following the release of its financial results for fiscal 2024 (ended Nov. 3), catapulting the company into the exclusive $1 trillion club. Investors were impressed with Broadcom's soaring artificial intelligence (AI) revenue, which comes from selling custom chips and networking equipment for data centers. Plus, the company issued a very bullish forecast for its future AI revenue, which points to substantial potential growth ahead. However, before you rush to buy Broadcom stock, you'll have to get comfortable with its lofty valuation. Here's what you need to know. Broadcom was solely a supplier of semiconductors and electronics components for a variety of computing applications up until 2016, when it merged with fellow chip giant Avago Technologies. From there, the new-look Broadcom went on to spend around $100 billion acquiring other companies like semiconductor equipment supplier CA Technologies, cybersecurity vendor Symantec, and cloud software titan VMware. Those companies helped Broadcom diversify its business, and they are now important contributors to the company's overall revenue. In other words, they paved the way for it to become the $1 trillion giant it is today. But thanks to the spending boom on AI infrastructure from some of the world's leading tech giants, investors are currently laser-focused on Broadcom's semiconductor and networking businesses. The company makes custom AI accelerators (a type of data center chip) for three hyperscale customers, and while their identities are not disclosed, hyperscalers typically include Microsoft, Amazon, Alphabet, and Oracle. During Broadcom's fiscal 2024 fourth quarter, it said shipments of AI accelerators doubled compared to the year-ago period. Here's why that's important. Nvidia's graphics processing units (GPUs) for the data center are currently the most sought after chips in the AI industry. While each of the above hyperscalers are Nvidia customers, Broadcom gives them the ability to design their own chips, which means they can tailor their infrastructure to their own specific needs -- not to mention significantly reduce costs (Nvidia's hardware is very expensive). Additionally, the company said its AI connectivity revenue soared fourfold thanks to sales of its Tomahawk and Jericho data center switches. Those devices regulate how quickly data travels between chips and devices, and since AI developers often use tens of thousands of chips to train their models, faster processing can lead to substantial cost savings. Broadcom generated a record $51.5 billion in total revenue during the whole of fiscal 2024, which was a 44% increase from fiscal 2023. However, the majority of that growth was attributable to the inclusion of VMware's revenue for the first time, rather than organic growth (Broadcom acquired the company in 2023). Nevertheless, Broadcom managed to impress investors with its AI revenue, which surged by a whopping 220% to $12.2 billion in fiscal 2024. Most of that came from sales of the AI accelerators and networking equipment discussed earlier, and the company expects to carry its strong momentum into fiscal 2025. Broadcom's overall revenue growth came with a substantial increase in costs, which were partly attributable to the company's acquisitions (namely of VMware). Research and development spending, for example, increased by 78% year over year to $9.3 billion, which was the largest of the company's $19 billion in total operating expenses in fiscal 2024. As a result, Broadcom's fiscal 2024 net income (profit) of $5.9 billion actually represented a decrease of 58% from fiscal 2023. That significantly impacts the valuation of Broadcom stock for any investor valuing it based on its GAAP earnings, which I'll discuss further in a moment. On a non-GAAP basis, which excludes one-off expenses from acquisitions and non-cash costs like stock-based compensation, Broadcom's net income came in at $23.7 billion, which was actually a 28% increase from fiscal 2023. That gives investors a clearer idea of the trajectory of Broadcom's business. Broadcom generated GAAP earnings per share (EPS) of $1.23 during fiscal 2024, so its stock trades at a price-to-earnings (P/E) ratio of 183. That's an eye-popping number considering the Nasdaq-100 technology index trades at a P/E ratio of just 35. Based on its non-GAAP EPS of $4.96, its P/E ratio is 45. While significantly better, it's still a big number relative to the broader tech sector. Plus, many investors don't consider non-GAAP EPS to be "true" profitability, so it isn't a good idea to hang your hat on that number to make the argument that Broadcom stock looks attractive. Rather than using the traditional P/E ratio, we could value Broadcom using the price-to-sales (P/S) ratio instead, which divides a company's market capitalization by its annual revenue. Broadcom's P/S ratio is currently 20.7, which is almost triple its 10-year average of 7.4: In other words, Broadcom stock looks very expensive based on two measures of its P/E ratio, and also its P/S ratio. Therefore, buying the stock right now probably isn't a great idea for short-term investors with a time horizon of 12 months. However, there might be a compelling case to buy it for long-term investors who are willing to hold the stock for the next three years or more. That's because Broadcom thinks it can grow its AI revenue to between $60 billion and $90 billion annually by fiscal 2027, thanks to soaring demand for accelerators and networking equipment. Remember, its AI revenue came in at just $12.2 billion in fiscal 2024, so we're talking about a whopping 514% increase over the next three years (at the midpoint of the range). I still think investors should wait for a pullback before buying Broadcom stock given its current valuation, but it's certainly a very high-quality way to play the AI boom.

Why Broadcom Stock Is Slipping Today | The Motley Fool

After a two-session surge driven by the emergence of the chipmaker's artificial intelligence (AI) business in the fiscal fourth-quarter earnings report it delivered on Thursday, Broadcom (AVGO -5.14%) was pulling back Tuesday morning alongside the broader semiconductor sector. While there wasn't any company-specific news about Broadcom, its sell-off was indicative of a larger trend. As of 11:59 a.m. ET, the stock was down 4.4%. Investors seem to be debating the fair value of this stock after its post-earnings jump last week. Broadcom's results were mostly in line with analysts' consensus estimates, as was its guidance, but investors were particularly impressed with its AI-related growth. The company said its AI revenue jumped 220% in fiscal 2024 (which ended Nov. 3), and management predicted that AI revenue would grow by 65% in fiscal 2025's first quarter. It based that growth forecast on the high demand for its Jericho 3 Ethernet switches, which are designed for AI networks. Despite investors' enthusiasm for Broadcom's AI business, a broader sense of skepticism seemed to pervade the market Tuesday. Its chip stock peers Nvidia, Arm, and Marvell were all down as well. There wasn't a clear trigger for the sell-off, but investors seem to be worrying again that demand for AI products may not be as strong as current stock prices imply. Nvidia stock is now down four straight sessions in a row amid signs that growth in AI spending is likely to slow next year. High expectations are now baked into Broadcom's stock price. It trades at a price-to-earnings ratio of nearly 50 based on adjusted earnings, and its growth rate will moderate as it laps its acquisition of VMware, which closed in November 2023. Still, with AI-related tailwinds building for Broadcom, the stock looks fairly valued. It should be a winner over the long term.

Why Broadcom Soared (Again) Today | The Motley Fool

Monday's rally came after a near-25% surge on Friday, the day after the company reported earnings that contained blowout long-term guidance for the company's artificial intelligence (AI) chip business. It appears as though Broadcom is now seeing a follow-through rally Monday, helped along by a positive Wall Street analyst note. On Monday, Bank of America sell-side analyst Vivek Arya named Broadcom as one of his top semiconductor sector picks for 2025, despite the stock's recent rally. Arya wrote today he believes artificial intelligence winners will continue to outperform in the first half of 2025. Then, toward the back half of the year, non-AI related chip sectors currently in a downdraft, like industrial chips, could do better. Overall, Arya sees the semiconductor industry growing at a 15% pace, on top of the 20% gains estimated for 2024. Broadcom's crown jewel is its AI chip business, but it also makes chips across several end markets. The fact that Arya is still listing Broadcom as a top pick, even after the stock surged by 25% Friday and cleared a $1 trillion market cap, is fueling very high optimism. On the back of its fourth fiscal quarter earnings in which revenue actually missed expectations, Broadcom CEO Hock Tan said on the conference call with analysts the company expects between $60 billion and $90 billion in AI-related chip revenue in 2027, up from just $12.2 billion in 2024. That appeared to confirm the AI buildout will be longer lasting and larger than some skeptics might have imagined. Tan's longer-term guidance likely sent analysts scrambling to update their financial models to account for much higher revenue and earnings-per-share growth over the next three years, which is why Broadcom's stock is surging. As long as Broadcom's results come in line with its new outlook, the move appears justified.

Broadcom's 'Nvidia Moment' Has Arrived. Now It Needs to Deliver

Broadcom Inc.'s massive rally after last week's earnings report is reminiscent of when Nvidia Corp. shares first started to take off back in 2023. The chipmaker now needs to prove it can follow through to become another giant of the artificial intelligence era. Broadcom shares have soared 38% in the two trading days since it reported results, pushing the company's market capitalization to nearly $1.2 trillion. At the heart of the rally is Broadcom's prediction that the addressable market for AI components it designs for data center operators will be as big as $90 billion by fiscal 2027. But there's a lot to be done to turn that opportunity into reality.

Why Broadcom Stock Was Climbing Today | The Motley Fool

The move could accelerate Broadcom's growth in a sector dominated by Nvidia thus far and strengthens its relationship with Apple, the world's largest consumer electronics company. As of 10:21 a.m. ET, Broadcom stock was up 4.9% on the news. The Information reported this morning that Apple is developing its first server chip for AI and working with Broadcom on the networking technology. The details of the partnership aren't clear yet, but it could be a significant opportunity for Broadcom, as Apple's installed base of more than 2 billion devices and its recent launch of Apple Intelligence should make it a major player in AI, though thus far the technology has yet to move the needle for Apple. Apple is Broadcom's biggest customer, accounting for 20% of its revenue in fiscal 2023 and 2022, so it's not surprising to see the two companies teaming up on AI, especially given Broadcom's strength in networking chips. The news comes out ahead of Broadcom's fourth-quarter earnings report tomorrow, which is expected to show strong growth on the top and bottom lines, fueled in part by its acquisition of virtualization software VMware. Analysts expect revenue in the quarter to grow 51.2% to $14.1 billion, and adjusted earnings per share of $1.39, up from $1.11. However, investors will be closely focused on the company's AI growth, as the new technology has taken center stage in the chip sector. The company said earlier that it expected AI revenue of $12 billion for fiscal 2024. Keep that number in mind when the report comes out.

Broadcom jumps 9%, extending record run as Goldman expresses 'higher conviction'

The latest rally was spurred by Broadcom's better-than-expected earnings report late Thursday, and an uplifting outlook for the first quarter. Broadcom, which sells semiconductors and infrastructure software, is seeing soaring demand from the boom in generative artificial intelligence and reported a 220% jump in AI revenue for the year to $12.2 billion. Goldman Sachs analysts, who recommend buying Broadcom shares, lifted their 12-month target to $240 from $190, citing additional large customers for custom silicon. They also referenced management's execution following the $61 billion purchase of VMware, which closed last year. "We now have even higher conviction on the company's forward revenue and earnings growth outlook," the analysts wrote in a report dated Dec. 15. Barclays raised its priced target on the stock to $205 from $200, while Truist raised its call to $260 from $245. Broadcom shares are now up almost 120% for the year, reaching a high for $245.29 on Monday. Nvidia, which has been the primary beneficiary of the AI craze due to the popularity of its graphics processing units (GPUs), is up more than 165% this year, reaching a market cap of $3.2 trillion. The Nasdaq has gained 34%. Broadcom refers to its custom AI accelerators as XPUs, which are different than the GPUs Nvidia sells. Broadcom said it doubled shipments of XPUs in the quarter to "our three hyperscale customers." The company doesn't name the customers, but analysts say the three are Meta, Alphabet and TikTok parent ByteDance.

Broadcom Outpaces Nvidia In AI Chip Stock Valuation Race: Is Investor Sentiment Shifting? - NVIDIA (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO)

Nvidia faces challenges from bearish technicals, rising competition, and regulatory hurdles impacting its AI growth story. Broadcom Inc AVGO has quietly overtaken Nvidia Corp NVDA in valuation metrics, signaling a shift in investor sentiment within the AI chip industry. Chart created using Benzinga Pro While Nvidia remains a powerhouse, recent market action tells a different story. Chart created using Benzinga Pro Nvidia's stock has dipped 11% from its November highs, settling at $132, while Broadcom has surged 46% in the past week to $250, pushing its forward earnings multiple to 40.16 -- higher than Nvidia's 30.96, according to Benzinga Pro data. Read Also: Jim Cramer Warns Nvidia's 'Vicious' And 'Fast' Reversal Is Coming Amid 174% Surge This Year And China Antitrust Probe Bullish On Broadcom, Bearish On Nvidia? Broadcom is riding a wave of optimism, fueled by its role in creating custom AI chips for tech giants like Alphabet Inc's Google and Meta Platforms Inc. With its share price above all key moving averages, Broadcom's technical indicators are flashing bullish signs across the board. Nvidia, on the other hand, is grappling with a strongly bearish trend, trading below its eight, 20 and 50-day moving averages -- a clear bearish signal from technical analysts. Nvidia's Challenges Mount In the past, Nvidia has enjoyed a good lead over its semiconductor peers. Its AI chip revenue saw a meteoric rise of 265% year-over-year in the fourth quarter of 2023, given its first-mover advantage in the AI chip space. Competition has emerged and strengthened considerably since then. The company now also contends with uncertainties surrounding U.S.-China trade tensions, delays in its next-generation Blackwell chips, and internal hurdles with its server rack products. Additionally, Google's developing in-house AI chips could threaten Nvidia's long-term dominance. Broadcom's Long-Term Bet Broadcom's valuation surge reflects confidence in its future AI potential rather than immediate results. The company's recent messaging emphasizes its strategic role in AI infrastructure, positioning itself as a critical player in the ongoing revolution. Investors appear to be betting that this narrative will translate into sustained growth. Despite the current dip, Nvidia's AI chips remain in high demand, and the long-term opportunity is still vast. For investors, the recent pullback could be a momentary buying opportunity -- but only if the company successfully navigates its regulatory, technological, and competitive challenges. Read Next: Nvidia Technical Analysis Flashes Warning As NVDA Stock Slips Below Key Moving Averages, But Analysts Still See 18.11% Upside: Here's More Image: Shutterstock Market News and Data brought to you by Benzinga APIs

Broadcom Mounts Strongest 2-Day Rally Since IPO: Leveraged ETF Nearly Doubles In 2 Sessions - Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN)

Market cap jumped from $850 billion to $1.17 trillion, joining the elite trillion-dollar club of tech giants. Broadcom Inc.'s AVGO stock price soared 38% over two sessions -- its strongest two-day rally since going public in 2009. A blowout earnings report, bullish analyst updates, and promising artificial intelligence (AI) developments vaulted the semiconductor company into the elite trillion-dollar market-cap club. The impressive surge began on Friday, following Broadcom's latest earnings announcement, with shares climbing 24.4% in a single day. The momentum continued into Monday, where the stock advanced another 11%, pushing Broadcom's market cap from $850 billion to $1.17 trillion in just 48 hours. This achievement places the company alongside tech giants such as Apple Inc. AAPL, Microsoft Corp. MSFT, NVIDIA Corp. NVDA, Alphabet Inc. GOOG GOOGL, Amazon Inc. AMZN, Meta Platforms Inc. META, and Tesla Inc. TSLA. Earnings and AI Tailwinds Fuel Optimism Broadcom released earnings after the market closed last Thursday. Investors felt encouraged by the company's robust revenue growth due to surging demand for AI-related chips. The semiconductor manufacturer also revealed its ongoing collaboration with Apple to develop a custom AI chip, underscoring its expanding role in enabling next-generation AI technology. Adding to the bullish sentiment, Goldman Sachs analyst Toshiya Hari reiterated on Monday a "Buy" rating for Broadcom and raised the stock's 12-month price target from $190 to $240, labeling the company as a "key enabler of generative AI." Leveraged ETF Gains: Direxion AVL Nearly Doubles Broadcom's stock surge also had a dramatic impact on the Direxion Daily Broadcom Bull 2X Shares ETF AVL, which offers leveraged exposure to the company's daily stock performance. In just two sessions, the ETF skyrocketed 84%, reflecting Broadcom's remarkable gains. The leveraged ETF's performance highlights the outsized potential returns -- and risks -- of these high-magnitude investment vehicles during periods of strong market momentum. Catch Up On Benzinga's Latest Broadcom Updates: Broadcom's Options: A Look at What the Big Money is Thinking Broadcom, Tesla Propel Nasdaq 100 Gains, Bitcoin Hits $107,000, Fuels Crypto Stocks Rally: What's Driving Markets Monday? Broadcom's AI Chip Leadership Puts Pressure on Nvidia and Marvell, Analysts Say Apple's 2025 Chip Transition Targets New Wireless Edge, Broadcom To Retain Key Role Image: Shutterstock Market News and Data brought to you by Benzinga APIs

Nvidia stock slumps into a correction -- while Broadcom basks in its own 'Nvidia moment'

Why generative AI is in its 'Angry Birds' phase, according to DataStax CEO Chet Kapoor Shares of Nvidia fell 1.7% in pre-market trading Tuesday, after slumping into a correction by market close the day before, ending the day at $132. A correction typically refers to when a stock falls 10% or more from an all-time high closing price. Nvidia stock rallied to an all-time high of $148.87 in early November. Meanwhile, competing semiconductor manufacturer Broadcom is on a hot streak. Shares surged Monday, closing up more than 11% and ending the day at $250 apiece. Broadcom stock continued to rally early Tuesday, popping up 1% in pre-market trading. So far this month, shares of Broadcom are up roughly 50%, putting the stock on track to have its best month ever and adding hundreds of billions to its market capitalization. Broadcom now has a market capitalization of $1.17 trillion. Nvidia stock is still up 174% year-to-date. Broadcom shares have climbed 130% in the same period. As Nvidia sinks and Broadcom soars, the latter chipmaker is finally having its own "Nvidia moment," Bernstein analyst Stacy Rasgon wrote in a Monday note reported by MarketWatch (NWSA+0.35%). The company's "robust AI story is finding its own 'Nvidia moment' with a likely sharp new product ramp into [the second half of] 2025, and outlook for material opportunity ... a few years out," Rasgon said. Despite a "fairly lousy" core business outside of artificial intelligence, Broadcom posted promising fourth-quarter earnings last week that beat Wall Street estimates and provided upbeat guidance for the year to come. This past fiscal year, Broadcom generated a record $30.1 billion in semiconductor revenue, driven by AI revenue of $12.2 billion, the company said. AI revenue alone grew 220% on an annual basis, fueled by the company's AI XPUs and Ethernet networking portfolio. Broadcom is expecting first quarter revenue of approximately $14.6 billion, with EBITDA (earnings before interest, taxes, depreciation, and amortization) of 66% of projected revenue over the three months. In a call with analysts, company leadership said it sees the opportunity "over the next three years in AI as massive."

Broadcom Stock Jumps On Apple AI Chip Report: What's Going On? - Broadcom (NASDAQ:AVGO)

Broadcom will focus on development of the chip's networking technology. Broadcom Inc AVGO shares are trading higher Wednesday following a report indicating the company is working with Apple Inc AAPL on AI chip development. What To Know: According to a report from The Information, Apple is working with Broadcom to develop a server chip designed for AI tasks. Three people with direct knowledge of the matter said the AI server chip aims to help the company keep up with high computing demands of its new AI features. Apple is reportedly working with Broadcom on development of the chip's networking technology. Broadcom shares jumped approximately 5% on the news. Apple shares were also higher at last check. Apple unveiled AI features, or Apple Intelligence, for its latest products at its Worldwide Developers Conference earlier this year. In Apple's most recent earnings release, the company said new Apple Intelligence capabilities supercharged its product lineup heading into the holiday season. Broadcom is due to report fourth-quarter financial results after the market close on Thursday. Analysts expect the company to report earnings of $1.38 per share and revenue of $14.097 billion, according to estimates from Benzinga Pro. See Also: Inflation Rises As Expected In November, Sustains Hopes For December Interest Rate Cut AVGO Price Action: Broadcom shares were up 5.08% at $180.53 at the time of publication, according to Benzinga Pro. Photo: Shutterstock. Market News and Data brought to you by Benzinga APIs

Hyperscalers' AI Chip Bets Drive Broadcom Bullet Train To $1 Trillion Valuation

'We expect this to represent an AI revenue, serviceable addressable market, or SAM, for XPUs and network in a range of $60 [billion] to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024," Broadcom CEO Hock Tan told investors during the company's fourth-quarter earnings call. Broadcom CEO Hock Tan (pictured) said the company has a "massive" opportunity with three existing hyperscale customers -- and two more potential hyperscale customers -- which plan to buy millions of Broadcom's XPUs to accelerate AI workloads. "We see our opportunity over the next three years in AI as massive," he said. "Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators, or XPUs, as well as network these XPUs with open and scalable Ethernet connectivity for each of them. This represents a multiyear, not a quarter-to-quarter, journey." Tan steered the semiconductor through a strong fourth quarter with 11 percent growth in its legacy products year over year. Tan's remarks about the "massive" AI bets that the company's big three hyperscale customers are making sent Broadcom's shares rocketing 24 percent higher Friday and saw its valuation top $1 trillion. [RELATED: Broadcom CEO Hock Tan: VMware Bookings 'Continued To Accelerate,' While AI Chip Sales Surge] "In 2027 we believe each of them plans to deploy 1 million XPU clusters across a single fabric," he said. "We expect this to represent an AI revenue, serviceable addressable market, or SAM, for XPUs and network in a range of $60 [billion] to $90 billion in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024." Tan teased investors that more large hyperscalers are kicking Broadcom's XPU tires, which could "compound" the company's already heady revenue projections. "We have been selected by two additional hyperscalers and are in advanced development for their own next-generation, AI XP use. We have line of sight to develop these prospects into revenue-generating customers before 2027," Tan said. "So the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business." Broadcom shares closed last week at $224.80, up $44.14, driving its market cap to more than $1.05 trillion. VMware, which the company did not own in this time frame last year, contributed $3.85 billion in revenue for the quarter. When factoring in those sales, Broadcom achieved 51 percent growth in the comparable quarter. Broadcom completed its $69 billion acquisition of VMware in November 2023. For the full fiscal year, VMware earned about $13.8 billion in revenue. VMware ended its last full fiscal year as an independent company with annual revenue of $13.35 billion in March 2023. Broadcom's revenue including VMware was 44 percent higher. Tan said he has cut VMware's expenses in half since taking over the company a year ago, dropping quarterly operating costs from $2.4 billion to $1.2 billion in that time frame and boosting its margins from 30 percent to 70 percent. He said VMware was installed on 21 million CPU cores last quarter versus 19 million CPU cores in the previous quarter, and 4,500 of the company's largest 10,000 customers have converted their virtualization estates to Broadcom's bundle of software called VMware Cloud Foundation. Market research firm Forrester expects VMware customers to "shrink their deployments by 40 percent in favor of alternatives this coming year. It expects that increased migration to the public cloud, on-premises alternatives and new architectures will drive this reduction, analysts noted in its "Predictions 2025: Technology Infrastructure and Operations" report. On the earnings call Broadcom CFO Kirsten Spears said going forward Broadcom will no longer break out the company's virtualization revenue separately from its mainframe and other legacy software business.