Broadcom, the $1 trillion stock you shouldn't ignore, makes AI investment case

Mint

16 hours ago

Broadcom shares traded lower Friday following a mixed set of fiscal second-quarter earnings that should still underscore the semiconductor and software company's compelling position in the artificial-intelligence-investment race.
Broadcom, a tech group valued at just $125 billion five years ago, is now one of three key AI suppliers. Broadcom, with a market cap of more than $1.2 trillion, trails Nvidia in terms of market value, which now has a market cap of $3.42 trillion. But Broadcom also is almost seven times larger than Advanced Micro Devices.
That's in large part related to the company's standout offering of application-specific integrated circuits, also known as ASIC chips. The specialized semiconductors help hyperscalers like Apple, Alphabet's Google, and Meta Platforms build out their massive AI models. China-based ByteDance, the owner of short-form video app TikTok, also is a Broadcom client.
ASIC chips allow for the movement of information through these model networks, which Broadcom also helps construct, by easing traffic congestion and boosting speed and reliability.
That allowed Broadcom to grow its AI-related revenue by around 46% from last year, with a second quarter tally of $4.4 billion. The AI growth rate, in fact, was more than double the 20% advance for overall revenue, which came in just ahead of Wall Street forecasts of $15 billion.
Broadcom CEO Hock Tan sees more gains ahead, especially as hyperscalers transition from building their massive AI networks to training them to make decisions and perform tasks for their end customers.
By 2027, Broadcom has said, the serviceable addressable market, or SAM, for AI processors and networking chips likely will rise to between $60 billion and $90 billion.
'Our partners are still unwavering in their plan to invest despite the uncertain economic environment," Tan told analysts on a conference call late Thursday. 'In fact, what we've seen recently is that they are doubling down on inference to monetize their platforms."
Tan sees current-quarter revenue in the region of $15.8 billion, a 21% advance from last year, a tally that was only modestly firmer than Wall Street forecasts. AI revenue is predicted to rise 60% to $5.1 billion.
'The grade of growth we are seeing in 2025 will sustain into 2026, based on improved visibility and the fact that we're seeing inference coming in on top of the demand for training as the clusters get built up again," Tan said.
Shares in Broadcom, which have soared 85% over the past 12 months and have risen 12% on the year, compared with gains of 16% and 4.2%, respectively, for larger rival Nvidia, were down 3% in premarket trading Friday at $252.16.
That could suggest some profit-taking from the second-quarter update, which only just matched Wall Street's lofty growth forecasts.
Analysts, however, have started to lift their long-term price targets on the back of Broadcom's compelling position in the broader AI investment narrative.
Morgan Stanley analyst Joseph Moore lifted his price target by $10, taking it to $270 a share, while BofA Securities analyst Vivek Arya lifted his by $60 to $300.
Benchmark analyst Cody Acree raised his Broadcom price target by $60 to $315 a share.
'With the company's expected continue growth in its AI businesses, we believe Broadcom is extremely well-positioned to capitalize on what we expect to be improving industry fundamentals over both the short and long-term, with the company uniquely situated to reap the benefits of the macro industry trend toward growing usage of custom XPU silicon to more efficiently drive customer-specific workloads, with accelerating growth in inferencing applications," Acree wrote in a research note.