Broadcom Enters Trillion-Dollar Club: AI Demand Drives Growth

Broadcom Inc (NASDAQ: AVGO) has officially joined the trillion-dollar valuation club in 2024, alongside notable companies like Nvidia Corp and Taiwan Semiconductor Manufacturing Co.

Over the last five years, Broadcom's stock has skyrocketed by more than 634%. In the past year alone, it has gained over 84% in value.

According to Gartner, global semiconductor revenue reached $626 billion in 2024, marking an 18.1% increase. This growth was primarily fueled by the demand for graphics processing units (GPUs) and AI processors used in data centers, which are also known as servers and accelerator cards.

Looking ahead, Gartner projects that semiconductor revenue could rise to $705 billion in 2025, driven by increasing demand for AI and generative AI workloads. These developments have positioned data centers as the second-largest semiconductor market, coming in just after smartphones.

Based on its revenue performance in 2024, Broadcom was ranked sixth among global semiconductor vendors. Samsung Electronics regained the top spot from Intel Corp due to a significant rebound in memory prices. Despite advances in AI by Intel’s PCs and its Core Ultra chipset, these efforts were not enough to make a significant impact on its AI accelerator products, leading to modest growth in its x86 business. Meanwhile, Nvidia has moved from fifth to third place in market ranking, while Apple Inc has dropped from eighth to ninth.

Despite these rankings, Broadcom's enterprise value exceeds $1 trillion, dwarfing that of Samsung at $183 billion and Intel at $113 billion. Comparatively, Nvidia is valued at over $3 trillion, and Apple stands at more than $3.5 trillion.

For the fiscal year 2024, Broadcom reported a total revenue of $51.6 billion, marking a 44% increase. Within this total, semiconductor revenue reached $30.1 billion, while infrastructure software revenue added another $21.5 billion. Notably, AI revenue soared to $12.2 billion, reflecting a remarkable 220% increase, largely attributed to its AI XPUs and Ethernet networking products.

The strong infrastructure software revenue of $21.5 billion was bolstered by Broadcom’s acquisition of VMware. The company also doubled its AI XPU shipments to hyperscale clients in the same fiscal year.

In terms of geographical revenue, China constituted 20.3% of Broadcom’s revenue in fiscal 2024, down from 32.2% in the previous year and 35.0% in 2022. This decline highlights the impacts of the U.S. semiconductor embargo against China, which has raised national security concerns.

Adding further complexity to the narrative, a new AI model called DeepSeek, launched in China, claimed it could outperform competitors like OpenAI at a significantly lower cost, triggering a selloff in the U.S. tech market.

The broader U.S. tech sector is already facing scrutiny regarding the sustainability of high AI investment levels from major companies.

Last December, Broadcom’s CEO, Hock Tan, indicated that the company could see tens of billions of dollars in additional annual revenue from its AI chip offerings by 2027. He believes the excitement surrounding AI initiatives from heavyweights such as OpenAI and Elon Musk’s xAI will persist for at least the next decade.

Tan also predicted that clients may build clusters of up to 1 million AI chips by 2027, though he suggested that even this amount might not be sufficient to meet the aspirations of firms like OpenAI and Anthropic.

Meanwhile, analysts are optimistic that Broadcom stands to benefit from the selloff related to DeepSeek as the industry increasingly shifts toward more cost-efficient, high-performance silicon solutions.

Reports from last December indicated that Apple was collaborating with Broadcom to create a server chip specifically designed for AI applications.

Over the course of 2024, Broadcom successfully secured multiple generational AI ASIC contracts with OpenAI and a fifth significant customer, creating a pathway for an estimated $150 billion opportunity in AI semiconductors over the next five years, according to analysis by JPMorgan's Harlan Sur.

Sur highlighted that Broadcom is set to ramp up production of Alphabet Inc's next-generation 3nm TPU AI processor, with revenues projected to exceed $8 billion in 2025 and reach $10 billion in 2026.

Looking further, Meta Platforms Inc is anticipated to become another multi-billion-dollar client for Broadcom. Additionally, the expected Annualized Billing Value (ABV) from VMware is projected to exceed $3 billion by the first quarter, up from $2.7 billion sequentially.

According to regulatory filings, Taiwan Semiconductor was responsible for approximately 95% of Broadcom's wafer manufacturing during fiscal year 2024. Despite this reliance, Broadcom managed to maintain an impressive gross margin of over 64% in the same period, underscoring its strong pricing power.

BofA Securities' Vivek Arya remains optimistic about Broadcom’s growth potential, attributing it to a surge in demand for AI computing and networking solutions. However, Arya notes that despite this growth, he does not anticipate Nvidia’s GPU dominance to diminish, maintaining an expected market share of 80% or more. He predicts ASICs will secure a 10%-15% share of the overall accelerator market.

Broadcom exhibits an EV/EBITDA multiple of 47.9x, compared to Nvidia’s 41.7x and Taiwan Semiconductor’s 13.8x, indicating the premium market valuations that both Broadcom and Nvidia command due to their standing in the AI domain.

Currently, Broadcom has approximately 599.2 million shares listed in U.S. ETFs, with the Invesco QQQ Trust being the largest holder at about 90.58 million shares.

Price Action: As of the latest update, AVGO stock has seen a decrease of 2.10%, trading at $226.31.

Broadcom, AI, Semiconductors