Shares of Broadcom jump on rising AI chip sales and ‘massive opportunity’ for more – News

Shares of the computer chipmaker Broadcom Inc. made big gains in after-hours trading after the company reported a solid earnings beat and said its artificial intelligence revenue tripled from a year earlier.

Broadcom Chief Executive Hock Tan (pictured) told analysts that the company is working with three so-called hyperscalers, or big cloud service providers, helping them design AI chips. Such deals are likely to be extremely lucrative for the company, and its stock jumped more than 15% in the wake of those comments.

The company reported fourth-quarter earnings before certain costs such as stock compensation of $1.42 per share, beating the Street’s consensus estimate of $1.38. Revenue shot up by an impressive 51% from the same period one year ago, to $14.05 billion, though it still fell short of the $14.09 billion analyst target.

All told, the company reported $4.32 billion in net income for the quarter, up from a profit of $3.52 billion one year ago.

For the full fiscal year 2024, Broadcom revenue jumped 44% from a year ago, to $51.57 billion in revenue, up 44%, though net income came to $5.89 billion, down from the $14.08 billion profit it recorded a year earlier.

Broadcom’s biggest business segment is the semiconductor solutions group, which includes its AI chips, and revenue there rose 12%, to $8.23 billion.

In a conference call with analysts, Tan revealed that the company is seeing unprecedented demand for generative AI infrastructure. As a result of this demand, its AI revenue for the full year jumped 220%, to $12.2 billion. AI revenue includes both sales of specialist chips and also ethernet networking components, which are used to link thousands of chips together in clusters.

“We see an opportunity over the next three years in AI,” Tan said on the call. “Massive specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators.”

Tan further elaborated, saying that Broadcom is working with three “very large customers” that it’s helping to develop proprietary AI chips. He added that he expects each of those customers to deploy more than 1 million AI chips in networked clusters by the end of 2027. It will be very lucrative for Broadcom too. Tan said he believes the total market opportunity for AI chips, which the company refers to as “XPUs,” together with AI networking components, is expected to grow to between $60 billion and $90 billion annually by that date.

Tan didn’t reveal whom those three very large customers are. Yesterday, reports emerged that Broadcom is helping Apple Inc. to build a customized server processor to power its Apple Intelligence AI features, though the company declined to comment on the rumors. However, Apple is not usually referred to as a hyperscaler, as that term is used to describe companies that operate fleets of large-scale data centers.

Broadcom’s fast-growing infrastructure software business reported $5.82 billion in sales during the quarter, almost tripling from the $1.96 billion it delivered one year ago. Most of that extra revenue comes from the acquisition of VMware, which closed in the year-ago quarter.

The company delivered a very good quarter to cap off an impressive performance throughout the entire fiscal year, said Constellation Research Inc. analyst Holger Mueller. He said Broadcom has emerged as one of the major beneficiaries of the AI trend, and that business is likely to keep growing. He also thinks it has done very well to consolidate the VMware business within its infrastructure software unit in such a short time.

“Hock Tan says Broadcom has already scored some major design wins, and we known Google Cloud is one customer, and Apple might also become one,” Mueller said.

The analyst said the main benefit of adding VMware is revenue diversification, which will give Broadcom a chance to grow even if the chip sector ever returns to the doldrums.

“Broadcom’s semiconductor revenue was around 80% of its total business one year ago, and now it’s just approximately 60%, and it has done that while simultaneously growing its total revenue base by almost $5 billion,” Mueller pointed out. “The naysayers of the VMware acquisition need to tip their hat to Hock Tan, as such a swing in just 12 months is an impressive feat.”

Mueller believes that VMware’s revenues will likely continue to grow under the stewardship of Broadcom.

“While everybody is chasing VMware customers, skeptics should remember that the re-certification of containers is an expensive task for enterprises,” he said. “So few will want to do so. And there’s always the chance that Broadcom can increase discounts if the customer attrition rate becomes too painful.”

Looking to the first quarter of the new fiscal year, Broadcom is anticipating sales of $14.6 billion, just above the Street’s forecast of $14.58 billion. It didn’t provide guidance for the full year.

The company also said it’s planning to increase its quarterly dividend by 11% in fiscal 2025, to 59 cents per share.

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