Broadcom’s fiscal fourth-quarter earnings revealed a surge in revenue, driven primarily by growth in its semiconductor solutions segment. The company reported record revenue of $14.05 billion, exceeding analyst estimates. However, the stock price experienced a sharp increase after CEO Hock Tan mentioned plans for large customers to deploy 1 million XPU clusters by 2027.
This custom AI opportunity appears substantial, drawing in more customers as companies seek alternatives to Nvidia’s graphics processing units (GPUs). Broadcom is developing these chips for several “hyperscaler” customers, including Apple, which has been working on a new AI server chip. While the stock has seen strong performance this year, caution should be exercised due to potential risks, such as losing Apple business or uncertainty surrounding TikTok and ByteDance’s plans.
The company’s addressable market for these chips is estimated between $60 billion to $90 billion in fiscal 2027, according to Tan. Broadcom also reported a 65% increase in adjusted EBITDA year-over-year to $9.1 billion. The stock now trades at a forward price-to-earnings (P/E) ratio of under 30, higher than past several years.
Investors should continue to monitor Broadcom’s progress as it pursues these custom AI opportunities, but the recent surge in its stock price warrants caution.
Source: https://www.fool.com/investing/2024/12/17/broadcom-shares-surge-as-it-adds-more-custom-ai