Broadcom, IBD Stock Of The Day, Sets Up Ahead Of Earnings
Broadcom is the IBD Stock Of The Day as the fabless chipmaker and infrastructure software provider prepares to report its fiscal second-quarter results on June 5.
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20 hours ago
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Broadcom's AI Bonanza Has Limits
Broadcom is making a lot of money by helping tech companies manufacture custom chips that speed up artificial-intelligence computations. Broadcom's stock is the fifth-best-performing in the S&P 500 over the past two months, rising more than 70% over the period—a stunning rise given the company's already large size. Years ago, Broadcom began helping Google make AI chips, an interesting but not wildly profitable side hustle at the time.
Wall Street Journal
21 hours ago
- Wall Street Journal
Broadcom's AI Bonanza Has Limits
Broadcom AVGO -5.00%decrease; red down pointing triangle is making a lot of money by helping tech companies manufacture custom chips that speed up artificial-intelligence computations. Investors seem to be giving it too much credit for that. Broadcom's stock is the fifth-best-performing in the S&P 500 over the past two months, rising more than 70% over the period—a stunning rise given the company's already large size. It eclipsed a $1 trillion valuation on the way up, surpassing Walmart and Tesla, and becoming the seventh-most-valuable listed U.S. company. A large measure of the excitement is justified. Years ago, Broadcom began helping Google make AI chips, an interesting but not wildly profitable side hustle at the time. The AI boom completely changed that. Alphabet's Google rushed to order more custom chips to infuse AI in its search engine, among other things. New customers, including Meta Platforms, lined up. Broadcom now expects $5.1 billion of revenue from AI processing and networking chips in its current quarter, up 60% from a year before and roughly a third of overall projected sales. It delivered another set of strong quarterly results Thursday and a revenue outlook that exceeded analyst forecasts. There remains room to run in custom AI chips. They are gaining traction among big tech companies looking for alternatives to Nvidia's popular and expensive AI chips. Morgan Stanley estimates the custom-chip market will be valued at around $30 billion in 2027, up from $12 billion last year. The road to reaching those numbers isn't as obstacle-free as Broadcom's market value may suggest, however. Custom-chip projects require hundreds of millions of dollars of upfront investment and often don't meet hoped-for performance goals. Google's latest custom AI chips are about half as good as their Nvidia counterparts, TD Cowen analysts estimated in a recent report—right at the threshold where producing them makes financial sense. In a February report, Morgan Stanley analysts said performance problems with custom chips were 'a more common complaint than people think.' Those issues mean big tech companies will hedge their bets and keep turning to Nvidia for a large slice of their AI computing needs. Morgan Stanley analysts estimated Friday that Google would increase spending on its custom chips by between 10% to 20% this year, but would triple or quadruple spending with Nvidia after previously skewing its spending in the other direction. Once they are in production, custom chips typically cost a fraction of the $30,000-plus Nvidia charges for its most advanced chips. But they aren't always a slam dunk on cost, because big computing systems jam-packed with custom chips often have to use optical networking technology that is more expensive than Nvidia's copper-wire systems. Then there is the cost of developing software that tells the custom chips what to do—a chore Nvidia's customers can largely avoid. External threats hang over Broadcom's custom-chip business as well, including a competitive market in which U.S. chip maker Marvell and Taiwan's MediaTek are increasingly nipping at its heels. Politics could also interfere with its growth: While Broadcom hasn't yet had to grapple with U.S. restrictions on sales to China, like Nvidia has, analysts believe one of its biggest clients is ByteDance, TikTok's Chinese owner. In a call with analysts Thursday, Chief Executive Hock Tan offered little assurance that Broadcom was insulated from export restrictions. 'Nobody can give anybody comfort in this environment,' he said. In the long run, Broadcom's biggest challenge may simply be that its market is more limited than Nvidia's. Custom AI chips are all the rage now, but Nvidia plays in a much bigger pond: The broader AI chip market is expected to grow at a 23%-annual pace in the next half decade to hit nearly $500 billion by 2030, according to a recent assessment from analysis firm TechInsights. Because of their development costs, custom AI chips will almost certainly continue to be the domain of well-heeled tech companies, not a wider swath of corporate and government customers. All those concerns would be easier to shrug off if it weren't for Broadcom's valuation. The company's forward price/earnings ratio of 33.6 is at a 23% premium to the PHLX Semiconductor Sector Index, near the highest premium Broadcom has commanded in at least a decade. It is also at a 13% premium over Nvidia. Broadcom has found a profitable niche for itself in the AI boom. But it is a less-comfy one than many investors think. Write to Asa Fitch at
Yahoo
a day ago
- Yahoo
Why Broadcom Inc. (AVGO) Crashed On Friday
We recently published a list of . In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against other Friday's worst-performing stocks. Broadcom dropped its share prices for a second day on Friday, shedding 5 percent to finish at $246.93 apiece as investors appeared to have already priced in its impressive earnings performance for the second quarter of fiscal year 2025. In a statement, Broadcom Inc. (NASDAQ:AVGO) said it netted $4.965 billion during the period, higher by 134 percent than the $2.121 billion in the same period last year. Revenues also increased by 20 percent to $15 billion from $12.487 billion. A technician working at a magnified microscope, developing a new integrated circuit. 'Broadcom achieved record second quarter revenue on continued momentum in AI semiconductor solutions and VMware. [Second quarter] AI revenue grew 46 percent year-over-year to over $4.4 billion, driven by robust demand for AI networking,' Broadcom Inc. (NASDAQ:AVGO) President and CEO Hock Tan. 'We expect growth in AI semiconductor revenue to accelerate to $5.1 billion in Q3, delivering ten consecutive quarters of growth, as our hyperscale partners continue to invest,' he added. Broadcom Inc. (NASDAQ:AVGO) also declared a cash dividend of $0.59 per share to stockholders as of June 20 record, payable on June 30. Overall, AVGO ranks 6th on our list of Friday's worst-performing stocks. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires. Disclosure: None. This article is originally published at Insider Monkey.
