Broadcom (AVGO.US) dreams of a $90bn market for custom AI chips and Wall Street sees it going as high as $250

Broadcom (AVGO.US) beat expectations in its fourth-quarter earnings, but its guidance that the market for custom AI chips could reach $90bn by 2027 seems to have surprised Wall Street.

Blayne Curtis, an analyst at Jefferies, wrote in a note to investors: “Management revealed plans for 1mn XPU clusters from customers, but the confidence on the call seemed higher. While we may not see more AI trends until later in the year, we believe the market will reengage with Broadcom.”

Curtis reiterated his “buy” rating and raised his price target to $225 from $205.

During the earnings call, Broadcom chief executive Hock Tan said he expects demand for custom AI chips to be between $60bn and $90bn in 2027.

Curtis added that the $60bn to $90bn came from three of the company’s AI-specific integrated circuit customers, including Google (GOOGL.US) and Meta (META.US), but could rise further if it wins business from the other two hyperscalers, Microsoft (MSFT.US) and Amazon (AMZN.US).

Joseph Moore, an analyst at Morgan Stanley, also raised his price target.

He wrote in a note: “While the quarter and outlook from Broadcom may be a relief relative to concerns about Google’s transformation, the long-term AI commentary adds to long-term enthusiasm. Momentum is expected to start building here in 2025.” He reiterated his “overweight” rating and raised his price target to $233 from $180.

Mark Lipacis, an analyst at Evercore ISI, was also excited about the guidance and said investors may have “underestimated” the opportunity for Broadcom’s custom AI chips.

In addition to the $90bn figure, Tan said synthetic data generated by AI was likely to be a “multiplier” of human-generated data, ultimately ending up in large language models, suggesting the tech industry was not even close to hitting the limits of large language models.

Lipacis added: “We agree with Hock on this point.” He reiterated his “outperform” rating and raised his price target to $250 from $201.