Broadcom is predicting a massive expansion in demand for AI-powered chips — and the market, for now, is buying it all up.
The company’s valuation hit $1 trillion on Friday as its shares surged 21% after CEO Hock Tan said AI could present a revenue opportunity of $60 billion to $90 billion by 2027, more than four times the much more than the current market size.
Broadcom also forecast first-quarter earnings above estimates on Thursday.
Some analysts said it was difficult to gauge market growth and Broadcom’s potential share, with TD Cowen noting that the forecast is “hard to prove/disprove, but it’s huge.”
Big Tech’s effort to diversify beyond Nvidia’s expensive and supply-constrained artificial intelligence processors has been a windfall for Broadcom, which makes custom chips for cloud majors.
Investors have also favored chipmakers that are already benefiting from the massive data centers being built by Microsoft and Meta, amid concerns about the benefits of AI investments for the wider tech industry.
Broadcom CEO Tan said on Thursday that the company has won two major hyperscale customers as it delivered $12.2 billion in AI revenue for fiscal 2024.
This represented a large portion of its estimated total service 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 that modeling the company’s stock was difficult because the service market could include processors sold by Nvidia.
Rosenblatt Securities analyst Hans Mosesmann estimated a much lower market share for Broadcom in 2027 between 20% and 50%.
Investors, meanwhile, picked up shares that trade at a lower multiple than rivals. Broadcom has a trailing 12-month price-to-earnings ratio of 29.8, compared with 31.03 for Nvidia, the first chip firm to reach a market value of $1 trillion, according to data compiled by LSEG.
“As AI moves from training models to inference, more and more chip companies will gain an advantage over Nvidia. Broadcom is the canary in the coal mine,” said Thomas Hayes, chairman and managing member at Great Hill Capital.
Shares of Nvidia and rival AI chipmaker AMD fell about 3%, while Broadcom’s smaller rival Marvell rose nearly 9%.
Contract manufacturer TSMC rose 4%.
Broadcom shares are up more than 60% this year, while Nvidia shares have more than doubled since the close.
Earnings eclipse those at major cloud companies, with Microsoft up about 11% this year and Alphabet — seen by analysts as Broadcom’s biggest custom chip customer — up 40% .
“They (Broadcom) went out of their way to give investors a reason to dream,” Bernstein analyst Stacy Rasgon said.
“The AI story seems to be coming into its own, maybe Hock might consider buying a leather jacket,” Rasgon said, referring to Nvidia CEO Jensen Huang’s signature style.
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