Broadcom Inc., a key player in the chip-making industry, is seeing quite the buzz in premarket trading, thanks to its optimistic outlook on AI chip demand. The company, a supplier to tech giants like Apple Inc., anticipates a sharp rise in its AI products sales—forecasting a 65% increase in the first fiscal quarter, significantly outpacing the overall semiconductor growth, which is pegged at around 10%. During a conference call discussing recent earnings, Broadcom revealed that the potential market for its AI components, designed for data center operators, could swell to $90 billion by fiscal 2027.
Mirroring Nvidia Corp.’s strategy, Broadcom aims to be at the forefront of the AI investment boom. CEO Hock Tan announced two major wins with new hyperscaler customers—these are the giants in the data center realm.
On Friday morning, Broadcom’s stock surged as much as 15% before the New York exchanges opened, hinting at the possibility of hitting a historic high if the momentum persists once regular trading kicks in. This year, the company’s shares have already seen a hefty 62% rise, closing at $180.66.
AI optimism has piqued investor interest in Broadcom, drawing them in throughout the year. Positioned in Palo Alto, California, Broadcom had initially predicted over $10 billion in annual revenue from the AI sector, surpassing other segments of its operations. Impressively, this number grew to $12.2 billion in the last fiscal year.
The company achieved a staggering 220% growth in AI revenue over the year, driven by the surge in demand for processors and networking components, according to Tan. In contrast, demand for non-AI chips is expected to dip in the first quarter, with total sales projected at $14.6 billion for the period ending in January—aligning with market estimates.
Under Tan’s leadership, Broadcom has become a powerhouse in the semiconductor landscape, thanks largely to a series of strategic acquisitions. Additionally, its software division is now nearly as substantial as its chip operations. This dual strength means Broadcom’s forecasts often serve as a reliable indicator of broader tech industry trends.
For the fourth quarter, Broadcom reported earnings of $1.42 per share, excluding certain items, and saw revenue climb to nearly $14.1 billion by November 3. Analysts had projected earnings at $1.39 per share, with revenue forecasts aligning at $14.1 billion, based on Bloomberg data.
Data center operators lean heavily on Broadcom’s custom chip designs and networking semiconductors for their AI infrastructures. The company also supplies components for automobiles, smartphones, and internet access equipment. Meanwhile, its software expansion encompasses mainframe computers, cybersecurity solutions, and data center optimization products.
Broadcom’s semiconductor segment brought in $8.23 billion in fourth-quarter revenue, marking a 12% increase, while software sales skyrocketed nearly 200% to $5.82 billion. The company has significantly grown, partly due to its acquisition of VMware Inc. for around $69 billion.
Ahead of its earnings announcement, some analysts expressed concerns over potentially weaker demand in Broadcom’s chip design division, pointing to delays in rolling out a new chip version for Alphabet Inc.
Apple, a pivotal client for Broadcom, relies on it for iPhone components. During earnings calls, Tan usually references Broadcom’s occasionally tense relationship with Apple using terms like “large North American customer.”
It was reported earlier by Bloomberg News that Apple might start phasing out a key Broadcom wireless chip next year. The iPhone maker has been on a quest to substitute external suppliers’ parts with internally developed ones, a shift that is also expected to impact Qualcomm Inc.
Nevertheless, Tan reassured that Broadcom maintains active engagements with Apple, collaborating on multiyear plans for various technologies. He also underlined Broadcom’s openness to future acquisitions, stating it remains a core strategy for the company over the past decade.
