With the AI boom, Broadcom Inc (AVGO, Financial) remains one of the top picks in the semiconductor sector, continually lighting up with growth. Custom AI solutions and VMware integration helped the company's fiscal 2024 revenue jump 44% year-over-year to a superb $51.6 billion. Organic revenue grew 9%, excluding VMware's contributions, and Broadcom is doing remarkably well numerically.
Notably, AI revenue was the outlier, soaring 220% to $12.2 billion, largely thanks to hyperscale clients like Google, Meta, and ByteDance. Broadcom surpassed more than 50% market share for AI hardware sales, with 76% of sales coming from custom AI accelerators. Its AI solutions are expected to command a serviceable market of $60–90 billion by 2027, and analysts estimate that Broadcom could command $37.5–50 billion in revenues if it maintains its market share.
However, challenges loom. It is also dependent on a small number of hyperscale customers, who bring with them potential risks if spending shifts or delays. The push into custom silicon is also hastening, with competitors like Nvidia and tech titans like Amazon and Microsoft joining the fray.
Its non-AI segments did not buck the broader industry trend. However, networking revenues rose 45%, while broadband and industrial segments declined by 51% and 27%, respectively. Integrating both hardware and software solutions adds opportunities but increases execution risk. Talk of possible acquisitions of IBM, Intel, or Fujitsu recently showed that VMware considers itself a merger and acquisition target.
Some analysts warn that Broadcom is trading at 28.3 forward earnings multiples, which are fool's gold. They suggest that the company's current valuation is looking premium compared to its peers. Broadcom can't afford to fail as the AI race accelerates, and its ability to navigate competition and client dependencies will be critical for its continued growth.
