The company projects a 65% surge in AI product sales during the first fiscal quarter, considerably exceeding the projected 10% growth in overall semiconductor sales, as announced during the post-earnings conference call. Furthermore, we anticipate the data center AI component market to reach $90 billion by fiscal year 2027.
Mirroring Nvidia Corp.'s strategy, Broadcom is strategically poised to leverage the escalating AI investment. CEO Hock Tan reported securing two major new hyperscaler clients, key players in the data center market.
Following this news, the stock surged by as much as 21% to $218.29 after the New York markets opened on Friday, marking its largest share-price increase since March 2020.
Investors have shown strong interest in Broadcom’s stock this year, driven by optimism surrounding AI. The company, based in Palo Alto, California, had forecasted over $10 billion in annual revenue from the AI sector, which has now exceeded expectations, reaching $12.2 billion in the last fiscal year.
AI revenue experienced a remarkable growth of 220% over the year, driven by heightened demand for processors and networking components, according to Tan. In contrast, demand for non-AI chips is expected to decline in the first quarter. Total sales for the period ending in January are projected to be $14.6 billion, aligning with market estimates.
Tan has built one of the most valuable companies in the semiconductor industry through a series of acquisitions and has developed a software division that is nearing the scale of its semiconductor business. This extensive reach positions the company’s forecasts as a key indicator of demand across a wide range of the technology sector.
The company reported a profit of $1.42 per share in the fourth quarter, excluding certain items. Revenue for the period ending November 3 rose to nearly $14.1 billion. Analysts had predicted earnings of $1.39 per share and average revenue of $14.1 billion, according to data from Bloomberg.
Data center providers depend on Broadcom’s custom chip designs and networking semiconductors to develop their AI systems. The company also manufactures components for automobiles, smartphones, and internet connectivity devices. Additionally, Broadcom is expanding its software offerings, which include solutions for mainframe computers, cybersecurity, and data center optimization.
In the fourth quarter, Broadcom’s semiconductor division reported revenues of $8.23 billion, reflecting a 12% increase. Software sales surged nearly 200%, reaching $5.82 billion. The company has significantly grown over the past year, partly due to its acquisition of VMware Inc. for approximately $69 billion.
Before the earnings report, analysts expressed concerns regarding a potential decline in demand for Broadcom’s chip design business, pointing to delays in the rollout of a new processor version for Alphabet Inc.
Apple stands out as a major customer for Broadcom, which supplies components for the iPhone. During earnings calls, CEO Tan often discusses the complex relationship with Apple, referring to it as his “large North American customer” or using similarly vague terminology.
Bloomberg News previously reported that Apple plans to begin transitioning away from a crucial Broadcom wireless chip starting next year. The iPhone manufacturer has been substituting components from suppliers with its own in-house alternatives, a trend that is also expected to affect Qualcomm Inc.
In the earnings call, Tan highlighted Broadcom's ongoing collaboration with Apple in developing long-term technology strategies. He further noted the company's receptiveness to future acquisitions, emphasizing that this approach has been a cornerstone of the company's strategic and operational model for the past ten years.