Broadcom expects demand for its AI-powered chips to grow significantly, and so far the market is buying them up.
The company's stock price plummeted after CEO Hock Tan said AI could present a revenue opportunity of $60 billion to $90 billion in 2027, more than four times the current market size. rose 21% on Friday, bringing the company's valuation to $1 trillion on Friday.
Broadcom also predicted on Thursday that first-quarter sales would beat expectations.
Multiple analysts said it was difficult to estimate market growth and Broadcom's potential share, and TD Cowen said the prediction was “hard to prove or disprove, but very large.” pointed out.
Big Tech's efforts to diversify beyond Nvidia's expensive and supply-constrained AI processors are a boost for Broadcom, which makes custom chips for major cloud companies.
Investors are also favoring chipmakers, which are already benefiting from large data centers being built by the likes of Microsoft and Meta, amid concerns about the return on AI investments for the broader technology industry.
Broadcom Chief Executive Officer Tan said on Thursday that the company had acquired two major hyperscaler customers as the company delivered $12.2 billion in AI revenue in fiscal 2024.
This accounted for most of the $15 billion to $20 billion total actionable market he estimated.
Based on Broadcom's estimated 70% market share in 2024, Broadcom could capture up to $50 billion in AI revenue of the total opportunity in 2027, according to analysts at TD Cowen. It means.
But they cautioned that modeling the company's share would be difficult because the practical market could also include processors sold by Nvidia and others.
Rosenblatt Securities analyst Hans Mosesmann predicted Broadcom's market share would be even lower in 2027, between 20% and 50%.
Meanwhile, investors have scooped up the stock, which trades at a lower multiple than its rivals. Broadcom's 12-month forward price/earnings ratio is 29.8 times, compared to 31.03 times that of Nvidia, the first semiconductor company to reach a market capitalization of $1 trillion, according to data compiled by LSEG. .
“As AI moves from training models to inference, more and more chip companies will take advantage of Nvidia, and Broadcom is the canary in the coal mine,” said David E., chairman and managing member of Great Hill Capital. Thomas Hayes said.
Shares of Nvidia and rival AI chip maker AMD fell about 3%, while Broadcom's smaller competitor Marvell rose nearly 9%.
Contract semiconductor maker TSMC rose 4%.
Broadcom's stock price has risen more than 60% since the beginning of the year, and Nvidia's stock price has more than doubled since its last close.
The growth has outpaced that of the big cloud companies, with Microsoft up about 11% this year and Alphabet, which analysts say is Broadcom's biggest custom chip customer, up 40%.
“They (Broadcom) went out of their way to give investors a reason to dream,” said Bernstein analyst Stacy Rasgon.
“The AI story seems to be in full swing. Maybe Hock might consider buying a leather jacket,” Rasgon said, referring to NVIDIA CEO Jensen Huang's signature style. Ta.
