Broadcom stock soars as company touts ‘massive’ AI opportunity

Broadcom stock (AVGO) soared more than 24% Friday as the chipmaker touted its “massive” opportunity in the artificial intelligence market during a quarterly earnings call the prior evening.

Broadcom CEO Hock Tan said the company expects its custom AI chips will generate between $60 billion and $90 billion in revenue over the next three years from its three existing hyperscaler customers, whom the company did not name. Tan reiterated his belief that each of the three hyperscalers will deploy 1 million clusters of its custom AI chips called XPUs by 2025.

Broadcom also confirmed that it has added two more hyperscaler customers who are “in advanced development for their own next-generation AI XPUs,” which could generate further revenue. Media reports, citing anonymous sources, have indicated those new customers could be ChatGPT-maker OpenAI and Apple (AAPL).

“We see our opportunity over the next three years in AI as massive,” Tan said in the call with investors Thursday evening.

Broadcom’s gain Friday put it up roughly 98% for the year, pushed its share price to an all-time high of $221, and rocketed its market cap past the $1 trillion mark.

Apple is reportedly working with Broadcom to develop an AI server chip, according to The Information. The move by tech giants to make their own server chips is meant to cut costs and scale back their reliance on Nvidia’s (NVDA) GPUs (graphics processing units). OpenAI is reportedly making a similar move in partnership with Broadcom, according to Reuters and Bloomberg.

Broadcom makes custom chips for data centers, consumer electronics like smartphones and laptops, and electric vehicles. The company has expanded to making enterprise software with partnerships with Microsoft (MSFT) and Google (GOOG).

A smartphone with a displayed Broadcom logo. REUTERS/Dado Ruvic/Illustration/File Photo · Reuters / Reuters

Still, concern exists that Big Tech may not be able to sustain its spending on AI infrastructure if it cannot meaningfully monetize the new technology. OpenAI suffered roughly $5 billion in losses in 2024. And only 4% of US workers actually use AI daily, according to a recent Gallup poll cited by Bloomberg.

Broadcom’s opportunity in the AI chip space is not mirrored in the other parts of its semiconductor business. Overall, in its fourth quarter, semiconductor revenue grew 12% from last year to $8.2 billion. That masked a divergence between its AI chips and non-AI chips, though. AI chip sales grew a strong 150% to $3.7 billion, while non-AI semiconductor revenue declined 23% to $4.5 billion.

“The reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business,” Tan said.

That trend is reflected in the industry at large. The AI chip market is set to grow 74% in 2025, while the semiconductor market overall is projected to grow just 12% next year, according to consulting firm International Business Strategies, which tracks industry data. IBS data shows the AI chip market — also known as the accelerator chip market — outpacing the sector at large through 2030.

Broadcom’s earnings for the October period were “decent,” Bernstein analyst Stacy Rasgon wrote in a note to investors early Friday. Its quarterly adjusted earnings per share of $1.42 slightly were above the $1.39 forecast by analysts, and its revenue of $14.1 billion was in line with expectations.

“Hock might look good in a leather jacket,” quipped Rasgon, alluding to Nvidia CEO Jensen Huang’s now-famous black leather jacket. Rasgon raised his price target on the stock to $250 from $195 and maintained his Outperform rating.

Meanwhile, Raymond James analyst Srini Pajjuri said he’s “reluctant to chase the stock at current levels” given that it’s trading at 33 times its 2025 fiscal year price-to-earnings ratio. Pajjuri maintained his Market Perform rating.