Broadcom stock (AVGO) experienced a significant surge, climbing over 20% on Friday, following CEO Hock Tan’s bullish outlook on the artificial intelligence (AI) market during the company’s quarterly earnings call. Tan projected that Broadcom’s custom AI chips, known as XPUs, could generate revenues ranging from $60 billion to $90 billion over the next three years from their current three hyperscaler clients, although these clients were not explicitly named. He further anticipated that each of these hyperscalers would deploy around 1 million clusters of these XPUs by 2025.
Broadcom also announced the addition of two new hyperscaler customers currently in advanced development stages for their next-generation AI chips, potentially including OpenAI and Apple (AAPL), according to media reports. This expansion could further amplify Broadcom’s revenue streams in the burgeoning AI sector. Tan emphasized the “massive” potential in AI, underlining the strategic importance of these developments for Broadcom’s future growth.
The stock’s rally pushed Broadcom’s share price to a record high of $221.65, elevating its market capitalization beyond the $1 trillion threshold and marking a year-to-date increase of approximately 95%. This performance reflects investor confidence in Broadcom’s strategic direction, particularly in its AI endeavors.
Apple’s reported collaboration with Broadcom to develop an AI-focused server chip, codenamed “Baltra,” expected to enter mass production by 2026, underscores a broader trend among tech giants to produce their own server chips, aiming to reduce costs and lessen dependency on Nvidia’s (NVDA) GPUs. Similarly, OpenAI’s partnership with Broadcom to develop a specialized AI chip focused on model inference, highlights the company’s growing footprint in custom chip solutions for AI applications.
Outside of AI, Broadcom manufactures chips for a diverse range of applications including data centers, consumer electronics, and electric vehicles, and has also ventured into enterprise software through partnerships with Microsoft (MSFT) and Google (GOOG). The company’s financial performance for the October quarter was described as “decent” by Bernstein analyst Stacy Rasgon, with adjusted earnings per share at $1.42, slightly above forecasts, and revenues aligning with expectations at $14.1 billion. Rasgon, humorously likening CEO Tan to Nvidia’s Jensen Huang for his leadership in the AI chip space, raised his price target on Broadcom to $250 from $195, maintaining an ‘Outperform’ rating.
Contrastingly, Raymond James analyst Srini Pajjuri expressed caution about chasing the stock at its current valuation, which stands at 33x its FY2025 P/E ratio, suggesting a ‘Market Perform’ rating. This diversity in analyst perspectives underscores the debate around Broadcom’s current stock valuation versus its growth potential in the AI domain.
Price Action: AVGO experienced a significant surge on Friday, with its stock price soaring 21% to reach an all-time high of $221.65. This remarkable gain, which has propelled the company’s year-over-year increase to roughly 93%, has also catapulted its market cap past the $1 trillion mark.
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