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Broadcom (AVGO.US) market cap first surpasses $1 trillion, AI business shines

Market IntelFriday, Dec 13, 2024 6:21 pm ET

1min read

Broadcom (AVGO.US) shares soared more than 24% at Friday's close, reaching a market capitalization of over $1 trillion for the first time, marking the company's best single-day performance. The milestone was driven by Broadcom's fourth-quarter earnings that surpassed Wall Street expectations and showcased strong growth in its artificial intelligence (AI) revenue.

Broadcom reported fourth-quarter revenue of $14.05 billion, up 51% year-on-year, slightly below analysts' expectations of $14.09 billion. The semiconductor solutions segment (which includes AI chips) saw a 12% increase in revenue to $8.23 billion, compared to $8.03 billion in the same period last year.

Notably, Broadcom's AI-related revenue surged 220% year-on-year, reaching $12.2 billion for the full year. The news of Broadcom's CEO Hock Tan announcing during after-hours trading on Thursday that the company is working with a large cloud computing customer to develop custom AI chips sent shares soaring.

Broadcom's net profit for the quarter was $4.32 billion, or $0.90 per share, up 23% from $3.52 billion (or $0.83 per share) in the same period last year.

Analysts at Bernstein said in a Friday report that despite the tense market sentiment ahead of the earnings release, Broadcom's performance was satisfactory and filled them with confidence in the company's management's short-term and long-term vision for AI. The analysts raised their target price for Broadcom to $250 from $195 and humorously mentioned that Hock Tan might follow the iconic leather jacket style of Nvidia (NVDA.US) CEO Jensen Huang.

Analysts at Bank of America reiterated their "buy" rating on Broadcom, citing the company's significant potential in the AI space. They noted that Broadcom currently dominates the custom chip market but also cautioned investors to be wary of intense competition with Nvidia in the commercial silicon and enterprise customer segments.

Analysts at Morgan Stanley believe that Broadcom's comments on AI will further boost market optimism about its long-term prospects. They predict that Broadcom will continue to be one of the "most compelling picks" for investing in AI semiconductors over the next two to three years.

Analysts generally believe that Broadcom's recent performance has eased market concerns about short-term performance, while the company's long-term plans for AI chips have further fueled investor enthusiasm. As Morgan Stanley's analyst put it: "The AI story is really coming together, and this enthusiasm has reached an unprecedented level."

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