Broadcom impresses with record results and AI chip development

Broadcom's shares saw a significant rise after the company reported record revenues for the fourth fiscal quarter ending November 3 and announced the development of custom artificial intelligence (AI) chips for several major customers. The price increase led to an annual share price rise of over 100 percent. The outlook from CEO Hock Tan especially caught investors’ attention and gave further momentum to the stock. Tan reported that all three major "hyperscaler" customers, which operate gigantic data centers, plan to deploy one million XPU (AI chip) clusters each by 2027. This could mean an addressable market of 60 to 90 billion dollars for Broadcom in fiscal year 2027. Furthermore, two other hyperscalers are in the advanced development of their own AI chips, which could significantly expand the market potential. Broadcom plans to make these companies revenue-generating customers by 2027. It is speculated that Apple could be one of these new customers, as reports of collaboration with Broadcom on a new AI server chip named Baltra are circulating, with its design expected to be completed next year. Broadcom’s quarterly results show a revenue increase of 51 percent to 14.05 billion dollars. Without the contribution of the VMware acquisition in November 2023, revenue growth was 11 percent and just below analysts’ expectations of 14.09 billion dollars. Revenue in the semiconductor solutions segment rose by 12 percent to 8.2 billion dollars, with the network segment particularly standing out with a 45 percent increase to 4.5 billion dollars. Here, the specialty segment of AI network solutions grew impressively by 158 percent. Broadcom's wireless revenues rose by 7 percent to 2.2 billion dollars, driven by higher content revenues. Despite reports of Apple's efforts to develop its own Bluetooth and WLAN chips, Broadcom remains engaged in long-term planning with Apple, particularly in areas like RF, WLAN, Bluetooth, sensors, and touch technologies. Revenue in the server storage connectivity area rose by 20 percent to 992 million dollars and is expected to continue growing. Broadband revenue plummeted by 51 percent to 465 million dollars, though Broadcom remains optimistic as some significant orders came in during the quarter. Industrial sales fell by 27 percent but account for only about 1 percent of total revenue at 173 million dollars. Broadcom expects a recovery in the second half of the year.