Jefferies Names Broadcom Inc. (AVGO) Top Pick for 2025, Citing Rapid AI Chip Market Growth and $60B Revenue Potential

Broadcom Inc. (AVGO) has been named the top pick for 2025 by Jefferies, a leading global investment bank, citing the company's rapid growth in the AI chip market and its potential to reach $60 billion in revenue by 2027. The investment firm's optimism is driven by Broadcom's strategic focus on AI chips, partnerships with major tech companies, and the acquisition of VMware, which has added significant revenue streams.



Jefferies anticipates significant growth trends for Broadcom in the AI chip market in 2025. According to the firm, Broadcom's AI-related revenue is expected to surge by 220% year-over-year, reaching $12.2 billion in 2024. This growth is primarily driven by the company's AI XPU and Ethernet product portfolio, which cater to the increasing demand for generative AI infrastructure. Jefferies projects that the serviceable addressable market for Broadcom's custom AI accelerators and networking chips will range between $60 billion and $90 billion by fiscal year 2027. If Broadcom maintains its current market share of 55% to 60%, its AI revenue could potentially reach as high as $37.5 billion to $50 billion by that time.



Broadcom's $60 billion revenue potential by 2027, as projected by CEO Hock Tan, represents a significant increase from its historical growth rates. In fiscal year 2024, Broadcom reported a 44% year-over-year increase in revenue, reaching $51.6 billion. This growth was driven by a 181% increase in infrastructure software sales, primarily due to the acquisition of VMware, and a 7% increase in semiconductor solutions revenue. The company's AI-related revenue surged by 220% year-over-year to $12.2 billion, indicating the potential for continued growth in this segment.

To put the $60 billion revenue potential into perspective, consider the following:

* If Broadcom were to achieve this revenue target by 2027, it would represent a compound annual growth rate (CAGR) of approximately 25% from its 2024 revenue of $51.6 billion.
* This projected CAGR is higher than the company's historical growth rates. For instance, from 2019 to 2024, Broadcom's revenue grew at a CAGR of around 15%.
* The projected $60 billion revenue potential is also significantly higher than Broadcom's historical peak revenue of $22.5 billion in 2018, before the acquisition of Brocade and CA Technologies.

In summary, Broadcom's $60 billion revenue potential by 2027, if achieved, would represent a significant acceleration in growth compared to the company's historical performance. This growth is expected to be driven by the increasing demand for AI chips and the company's strategic partnerships with major hyperscalers.



Broadcom's top pick status is driven by several key factors, which can be considered sustainable based on the information provided:

1. AI Chip Market Growth: Broadcom's focus on AI chips, particularly eXtreme Processing Units (XPUs), is a significant driver of its growth. The AI chip market is expected to grow significantly, with Broadcom's clients planning to deploy millions of AI chips in networked clusters by 2027. This growth is projected to reach a market opportunity of $60 billion to $90 billion by 2027 (CNBC).
2. Custom Silicon Solutions: Broadcom's partnerships with major tech companies like OpenAI, Apple, Google, Meta, and ByteDance for custom AI server chips and accelerators are driving its growth. These collaborations demonstrate the company's ability to adapt to the evolving needs of its clients and maintain a competitive edge in the market.
3. VMware Acquisition: The acquisition of VMware in 2023 added $3.8 billion to Broadcom's revenues in fiscal 2024 and is expected to contribute an additional $4 billion in 2025. This integration is expected to bring operational inefficiencies, but it also introduces new revenue streams and expands Broadcom's product offerings.
4. Hyperscaler Demand: Broadcom's strong relationships with hyperscalers, such as Amazon, Microsoft, Google, and Oracle, drive demand for its AI chips and networking solutions. These clients are scaling up their operations rapidly, creating a consistent need for Broadcom's products.
5. Strong Financial Performance: Broadcom's impressive financial results, including a 44% annual revenue increase in fiscal 2024 and a 220% increase in AI-related revenue, demonstrate the company's ability to execute on its growth strategy. The company's strong financial performance is a testament to the sustainability of its business model.

These factors, combined with Broadcom's strategic acquisitions, partnerships, and focus on emerging technologies, contribute to its top pick status and suggest that its growth trajectory is sustainable in the long term. However, investors should remain cautious about potential risks, such as competition, execution challenges, and shifts in client spending.