Broadcom’s stock skyrocketed on Friday, soaring 21 per cent, as the company projected a monumental expansion in the demand for chips powering artificial intelligence (AI). The surge propelled Broadcom’s market valuation to an unprecedented $1 trillion, fuelled by CEO Hock Tan’s forecast of a $60 billion to $90 billion AI revenue opportunity by 2027—over four times the current market size.
The bullish outlook also accompanied Broadcom’s announcement of first-quarter revenue projections exceeding market estimates, further cementing its position as a key player in the burgeoning AI chip market.
AI market growth fuels broadcom’s rise
The tech industry’s growing focus on AI has created significant demand for chips that power massive data centres and advanced AI workloads. Broadcom, which produces custom chips for major cloud providers, is emerging as a top alternative to Nvidia, whose high-priced and supply-constrained AI processors have dominated the space.
Tan revealed on Thursday that Broadcom secured two major hyperscaler customers in 2024, generating $12.2 billion in AI-related revenue—more than half of the estimated $15 billion to $20 billion serviceable market for AI chips this year. Analysts at TD Cowen estimate that, based on Broadcom’s 70 per cent market share in 2024, the company could capture up to $50 billion of the total 2027 AI chip opportunity.
Analysts remain cautious
Despite Broadcom’s optimistic projections, several analysts have expressed caution regarding the reliability of the estimates. TD Cowen described the forecast as “difficult to prove/disprove but huge,” highlighting the uncertainty surrounding the growth of the overall market and Broadcom’s potential slice of it.
Hans Mosesmann of Rosenblatt Securities estimated Broadcom’s market share in 2027 could fall between 20 per cent and 50 per cent—significantly below the company’s current dominance. Much of the serviceable market, Mosesmann noted, might include competing processors from Nvidia and other chipmakers.
Investor sentiment and competitive edge
Broadcom’s shares have already climbed over 60 per cent this year, outpacing gains in major cloud providers like Microsoft, which is up about 11 per cent, and Alphabet, up 40 per cent. While Broadcom’s rise remains impressive, Nvidia’s stock has more than doubled year-to-date, retaining its position as the first semiconductor company to achieve a $1 trillion valuation.
Still, Broadcom offers an attractive proposition for investors seeking value in the competitive AI market. The company trades at a lower forward price-to-earnings ratio of 29.8 compared to Nvidia’s 31.03, according to LSEG data.
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“They (Broadcom) went out of their way to give investors a reason to dream,” said Stacy Rasgon, an analyst at Bernstein. “The AI story seems to really be coming into its own, perhaps Hock might think about shopping for a leather jacket,” she quipped, referencing Nvidia CEO Jensen Huang’s signature style.
Challenges and opportunities
The AI boom has turned into a windfall for chipmakers like Broadcom, driven by Big Tech’s push to build expansive data centres. Companies such as Microsoft and Meta are investing heavily in infrastructure to support AI technologies, bolstering demand for specialised chips.
However, Broadcom’s long-term dominance is far from assured. Analysts caution that its ability to maintain a leading market share depends on how effectively it competes with established players like Nvidia and emerging rivals. The growth of AI-driven data centres and cloud services also presents challenges as companies face rising costs and uncertain returns on their AI investments.
A record-setting year
As Broadcom basks in the glow of its record-breaking valuation, it remains to be seen how the AI chip market will evolve. With demand for AI processors expected to grow exponentially, Broadcom is well-positioned to capitalise on the opportunity, provided it can navigate competitive and technological challenges.
For now, the market appears to be embracing Broadcom’s ambitious vision, propelling its stock to new heights and reinforcing its status as a key player in the AI revolution.
