Broadcom Rallies on Forecast for Booming AI Chip Demand

Broadcom Inc. (AVGO) shares surged on Friday, December 13, 2024, following the company's upbeat forecast for artificial intelligence (AI) chip demand. The chipmaker's stock price climbed 14% in premarket trading, pushing its market value closer to $1 trillion. This rally comes on the heels of Broadcom's earnings report, which revealed a 220% year-over-year increase in AI revenue and a bullish outlook for the coming years.

Broadcom's CEO, Hock Tan, expects the AI market to present a revenue opportunity between $60 billion and $90 billion for fiscal 2027. The company has already captured more than $12 billion of the total serviceable AI revenue in fiscal 2024, with a market share of around 70%. This growth is driven by the increasing demand for custom AI chips from large technology companies looking to reduce their dependence on supply-constrained AI processors made by front-runners like Nvidia.



Broadcom's AI chip roadmap aligns with the needs of its major customers, such as large cloud firms. The company has won two major hyperscaler customers and expects each to deploy 1 million AI chips in networked clusters by 2027. This aligns with the growing demand for AI infrastructure, as seen in the 220% year-over-year increase in Broadcom's AI revenue.



The total market opportunity for Broadcom's AI chips and networking parts is estimated to be between $60 billion and $90 billion by 2027. This growth is fueled by the soaring demand for generative AI infrastructure and the development of custom AI accelerators with large cloud customers.

Broadcom's AI chip strategy offers several advantages over Nvidia and Marvell. Firstly, Broadcom's custom AI chips cater to the specific needs of large technology companies, reducing their dependence on pricey, supply-constrained AI processors made by front-runners like Nvidia. This allows Broadcom to tap into a massive market opportunity. Secondly, Broadcom's AI chips are not only limited to AI processing but also include networking equipment used in data centers, providing a comprehensive solution for AI infrastructure.

In conclusion, Broadcom's rally on the forecast for booming AI chip demand reflects the growing interest in AI technology and the increasing adoption of AI by large technology companies. As AI algorithms and models advance, the need for more powerful AI chips increases, driving demand for custom AI accelerators. Broadcom's AI chip strategy, focusing on custom AI accelerators and networking equipment, positions the company well to capitalize on this growing market opportunity.