Broadcom shares jump after chipmaker predicts AI sales surge

SAN FRANCISCO - Broadcom, a chip supplier for Apple and other big tech companies, rallied in late trading after predicting a boom in demand for its artificial intelligence (AI) chips. 

Sales of its AI products will gain 65 per cent in the fiscal first quarter, far faster than its overall semiconductor growth of about 10 per cent, the company said during a post-earnings conference call on Dec 12. The chipmaker also predicted that the total available market for AI components that it designs for data centre operators would reach as high as US$90 billion (S$121 billion) by fiscal 2027.

Like Nvidia, Broadcom is positioning itself to be a major beneficiary of the AI spending frenzy. And Broadcom chief executive Tan Hock Eng said his company had won two major new hyperscaler customers – the biggest operators of data centres.

The stock rose about 14 per cent in extended trading on Dec 12 following the announcement. It had been up 62 per cent in 2024 through the close.

Investors have piled into Broadcom’s stock in 2024, lured by AI optimism. The California-based company had predicted that it would get more than US$10 billion in annual revenue from that market, outpacing other parts of its business. Ultimately, the number reached US$12.2 billion in the last fiscal year.

AI revenue grew 220 per cent during the year, fuelled by demand for processors and networking components, Mr Tan said. Demand for non-AI chips, meanwhile, will be down in the first quarter. Total sales will be US$14.6 billion in the period, which runs through January, in line with estimates.

Mr Tan has assembled one of the most valuable companies in the chip industry through a string of acquisitions. He has also built a software unit that is approaching the scale of its semiconductor operations. That reach makes the company’s forecasts a bellwether for demand over a broad swathe of the technology industry. 

Data centre providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems.

The company also sells components for cars, smartphones and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cyber security and data centre optimisation.

Broadcom’s semiconductor division had revenue of US$8.23 billion in the fourth quarter, up 12 per cent. Software sales grew nearly 200 per cent to US$5.82 billion.

The company is much larger than it was a year ago, partly because of its acquisition of VMware, which it bought for roughly US$69 billion.

Prior to the report, analysts raised concerns that Broadcom’s chip design business was suffering from weaker demand. They cited the slower introduction of a new version of a Broadcom processor for Google parent Alphabet.

Apple is a top customer of Broadcom, which provides components for the iPhone. During earnings calls, Mr Tan typically gives updates on Broadcom’s often-contentious relationship with that company, which he refers to as his “large North American customer” or another vague term.

Bloomberg News reported earlier that Apple would start switching away from a key Broadcom wireless chip starting in 2025. The iPhone maker has been replacing suppliers’ components with in-house versions, a trend that is also set to hit chipmaker Qualcomm.

Mr Tan said during the call that Broadcom continued to be highly engaged with Apple on multi-year road maps for various technologies. He also said that Broadcom remained open to acquisitions. 

“That has been a core part of our strategy and business model of this company for the last 10 years,” he said. BLOOMBERG