Broadcom Joins Elite $1 Trillion Club, Thriving in the AI Chip Market

Application-specific Integrated Circuit (ASIC) vendor Broadcom Inc AVGO has achieved a significant milestone, entering the trillion-dollar valuation club in 2024, alongside Nvidia Corp NVDA and Taiwan Semiconductor Manufacturing Co TSM.

Stellar Stock Performance and Semiconductor Growth

Broadcom’s stock has skyrocketed over 634% in the past five years and increased more than 84% in the last year alone.

Record Semiconductor Revenues Fuel Industry Expansion

According to Gartner, global semiconductor revenues hit $626 billion in 2024, reflecting an 18.1% increase. The growth of graphics processing units (GPUs) and AI processors for data centers played key roles in this expansion.

Looking ahead, Gartner anticipates revenue to rise to $705 billion in 2025, driven by the demand for AI and generative AI (GenAI) workloads. This trend has made data centers the second-largest semiconductor market in 2024, right after smartphones.

Broadcom’s Standing Among Competitors

In terms of revenue for 2024, Broadcom ranked sixth among global semiconductor vendors. Samsung Electronics SSNLF regained the top position from Intel Corp INTC, boosted by a rebound in memory prices. Despite the launch of AI PCs and the Core Ultra chipset, Intel’s performance lagged behind expectations. Meanwhile, Nvidia climbed from fifth to third place, while Apple Inc AAPL slipped from eighth to ninth.

Despite trailing in revenue, Broadcom’s enterprise value exceeds $1 trillion, significantly higher than Samsung’s $183 billion and Intel’s $113 billion. Nvidia and Apple also surpass it, valued at over $3 trillion and $3.5 trillion, respectively.

Strong Financial Performance Amid Regulatory Challenges

Broadcom reported a revenue of $51.6 billion for fiscal year 2024—an impressive 44% increase. Semiconductor revenue contributed $30.1 billion, while infrastructure software brought in $21.5 billion. Notably, AI revenue surged to $12.2 billion, marking a 220% rise, bolstered by strong demand for AI XPUs and Ethernet networking.

The integration of VMware was a key factor in Broadcom’s infrastructure software revenue of $21.5 billion. Furthermore, the company doubled AI XPU shipments to hyperscale customers.

Impact of U.S. Restrictions on Revenue Diversity

China made up 20.3% of Broadcom’s revenue in fiscal 2024, a decline from 32.2% in 2023 and 35.0% in 2022, according to regulatory filings. This shift reflects the consequences of the U.S. semiconductor embargo against China, implemented for national security reasons.

Additionally, the launch of the DeepSeek AI model in China, which claims capabilities rivalling OpenAI’s offerings at a lower cost, has led to market jitters in the U.S. tech sector.

Future Projections and Strategic Partnerships

Last December, Broadcom’s chief, Hock Tan, informed investors that the company could potentially generate tens of billions of dollars from AI chips by 2027. This optimism is fueled by the growth of AI technologies from major players like OpenAI and Elon Musk’s xAI, which Tan believes will continue for at least the next decade.

Tan envisions customers deploying clusters of as many as 1 million AI chips by 2027, noting that even this number may not meet the expansive goals set by firms like OpenAI and Anthropic.

Moreover, analysts speculate that Broadcom might benefit from the recent selloff linked to DeepSeek, as the focus shifts toward affordable, high-performance semiconductor solutions.

Progress in AI Chip Development

Reports indicate that Apple is collaborating with Broadcom to create a server chip specialized for AI tasks. In 2024, Broadcom secured several multi-generational AI ASIC programs with OpenAI and another major client, positioning itself for a substantial $150 billion market opportunity in AI semiconductors over the next five years, as noted by JPMorgan’s Harlan Sur.

Sur also predicts that Broadcom will support the development of Google’s upcoming 3nm TPU AI processor, with anticipated revenues exceeding $8 billion in 2025 and $10 billion in 2026. He identified Meta Platforms Inc META as a potential future multi-billion dollar customer for Broadcom, which expects VMware’s Annualized Billing Value (ABV) to reach $3 billion in the first quarter, up from $2.7 billion sequentially.

Manufacturing and Investor Sentiment

According to regulatory filings, Taiwan Semiconductor manufactured approximately 95% of Broadcom’s wafers in fiscal 2024. Broadcom also reported a gross margin of over 64%, showcasing its strong pricing power.

BofA Securities’ Vivek Arya expressed cautious optimism about Broadcom, supported by the surge in AI compute and networking demand. However, he believes that Nvidia is unlikely to lose its dominant share of over 80% in the GPU market, as ASICs are expected to capture about 10%-15% of the accelerator market overall.

Broadcom has an EV/EBITDA multiple of 47.9x, compared to Nvidia’s 41.7x and Taiwan Semiconductor’s 13.8x, reflecting the premium value enjoyed by the former two companies due to their strong positions in the AI sector.

Currently, Broadcom has around 599.2 million shares in the U.S. ETF market, with the largest holder being the Invesco QQQ Trust QQQ, which owns approximately 90.58 million shares.

Price Action: Broadcom’s stock (AVGO) recently dipped 2.10% to $226.31, as of the last market check on Friday.

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