Broadcom stock jumps 21%, hits four-year high on AI boom to top $1 trillion market value for first time | Stock Market News

Broadcom Inc. surged to a $1 trillion market valuation for the first time on Friday, December 13, after predicting a boom in demand for its artificial intelligence (AI) chips. The chip supplier for Apple Inc. and other big tech companies predicted sales of AI products would gain 65 per cent in the first quarter, far faster than its overall semiconductor growth of about 10 per cent.

The AI chipmaker also predicted that the addressable market for AI components that it designs for data center operators would reach as high as $90 billion by fiscal 2027. The stock rose as much as 21 per cent to $218.29 after markets opened in New York on Friday, its biggest share-price rally since March 2020.

Like Nvidia Corp., Broadcom is positioning itself as a major beneficiary of the AI spending frenzy. Broadcom Chief Executive Officer (CEO) Hock Tan said his company had won two major new hyperscaler customers — the biggest operators of data centers.

Investors have piled into Broadcom’s stock this year, lured by AI optimism. The Palo Alto, California-based company had predicted to get more than $10 billion in annual revenue from that market, outpacing other parts of its business. Ultimately, the number reached $12.2 billion in the last fiscal year.

Tan said AI revenue grew 220 per cent during the year, fueled by demand for processors and networking components. Demand for non-AI chips, meanwhile, will be down in the first quarter. Total sales will be $14.6 billion in the period, which runs through January, in line with estimates.

Tan has assembled one of the most valuable companies in the chip industry through a string of acquisitions. He also has built a software unit that’s approaching the scale of its semiconductor operations. That reach makes the company’s forecasts a bellwether for demand over a broad swath of the technology industry.

Profit was $1.42 a share in the fourth quarter, excluding some items, the company said. Revenue rose to nearly $14.1 billion in the period, which ended Nov. 3. Analysts had estimated $1.39 a share in earnings and revenue of $14.1 billion on average, according to data compiled by Bloomberg.

Data center providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cybersecurity and data center optimization.

Broadcom’s semiconductor division had revenue of $8.23 billion billion in the fourth quarter, up 12%. Software sales grew nearly 200% to $5.82 billion. The company is much larger than it was a year ago, partly because of its acquisition of VMware Inc., which it bought for roughly $69 billion.

Prior to the report, analysts raised concerns that Broadcom’s chip design business was suffering from weaker demand. They cited the slower introduction of a new version of a Broadcom processor for Alphabet Inc.

Apple is a top customer of Broadcom, which provides components for the iPhone. During earnings calls, Tan typically gives updates on Broadcom’s often-contentious relationship with that company, which he refers to as his “large North American customer” or another vague term.

Bloomberg News reported earlier that Apple would start switching away from a key Broadcom wireless chip starting next year. The iPhone maker has been replacing suppliers’ components with in-house versions, a trend that’s also set to hit chipmaker Qualcomm Inc.

Tan said during the call that Broadcom continued to be highly engaged with Apple on multiyear road maps for various technologies. He also said that Broadcom remained open to acquisitions.

“That has been a core part of our strategy and business model of this company for the last 10 years,” he said.

Broadcom is predicting a massive expansion in demand for chips that power AI – and the market, for now, is buying it all the way.

The company’s valuation hit $1 trillion on Friday as its shares surged 21% after CEO Hock Tan said AI could present a $60 billion to $90 billion revenue opportunity in 2027, more than four times the current size of the market. Broadcom also forecast first-quarter revenue above estimates on Thursday.

Several analysts said it was tough to estimate the market’s growth and Broadcom’s potential share, with TD Cowen noting the prediction is “difficult to prove/disprove, but is huge”.

Big Tech’s push to diversify beyond Nvidia’s pricey and supply-constrained AI processors has been a windfall for Broadcom, which makes custom chips for major cloud companies.

Investors have also favored chipmakers that are already benefiting from the massive data centers being built by the likes of Microsoft and Meta amid worries about the payoff from AI investments for the wider tech industry.

Broadcom CEO Tan said on Thursday the company has won two major hyperscaler customers, after it brought in $12.2 billion in AI revenue for fiscal 2024. That represented a major chunk of his estimated total serviceable market of $15 billion to $20 billion.

Of the total 2027 opportunity, Broadcom could capture as much as $50 billion in AI sales based on the 70% market share Broadcom estimated it had in 2024, TD Cowen analysts said. But they warned modeling the company’s share was difficult because the serviceable market could include processors sold by the likes of Nvidia.

Rosenblatt Securities analyst Hans Mosesmann estimated a much lower market share for Broadcom in 2027 at between 20% and 50%.

Investors, meanwhile, scooped up the stock that trades at a lower multiple than rivals. Broadcom has a 12-month forward price-to-earnings ratio of 29.8 compared with 31.03 for Nvidia, the first chip firm to hit $1 trillion in market value, according to data compiled by LSEG.

Broadcom’s shares are up more than 60% so far this year, while Nvidia’s stock has more than doubled, as of last close. This eclipses gains in major cloud companies, with Microsoft up about 11% this year and Alphabet – seen by analysts as Broadcom’s biggest custom chip customer – about 40% higher.