Broadcom (NASDAQ: AVGO) shares were skyrocketing higher after the company reported record revenue in its fiscal fourth quarter, ended Nov. 3, and said it was developing custom artificial intelligence (AI) chips for a number of large customers. The surge in share price brought the stock's gains up to more than 100% for the year to date.
Let's take a closer look at the company's most recent results and commentary to see if the momentum in the stock can continue.
AI opportunity
More than its results, it was the commentary from Broadcom CEO Hock Tan that got investors excited and helped push the stock higher. He said each of its big-three "hyperscaler" customers (those owning massive data centers) was planning to deploy 1 million XPU (AI chip) clusters by 2027. Including XPUs and networking equipment, Broadcom's addressable market among these three customers could be between $60 billion to $90 billion in fiscal 2027 alone.
In addition, Tan said two additional hyperscaler customers were in advanced development of their own artificial intelligence (AI) chips, which could significantly increase the addressable market. Tan said that Broadcom plans to turn these companies into revenue-generating customers by fiscal 2027.
Apple could be one of these new customers as it was recently reported that the iPhone maker was working with Broadcom on a new AI server chip, code-named Baltra, to help run its AI applications in the cloud. According to the reports, the company is looking to have the chip design completed within the next year.
Turning to Broadcom's results, revenue surged 51% to $14.05 billion in the quarter, but was up just 11% when excluding the contributions from its acquisition of VMware, which it acquired in November 2023. That was actually just below analyst estimates looking for revenue of $14.09 billion, as compiled by the London Stock Exchange Group.
Semiconductor solutions revenue increased 12% year over year to $8.2 billion. Within the segment, networking revenue led the way, soaring 45% to $4.5 billion, with custom AI networking revenue surging 158%.
Wireless revenue rose 7% year over year to $2.2 billion due to higher content. It has been rumored that Apple will be moving away from Broadcom for its own in-house bluetooth and Wi-Fi chip although the company said it continues "to be very engaged with this customer in multi-year road maps across various technologies we have leadership in, including RF, Wi-Fi, bluetooth, sensing, and touch."
Broadcom said that server storage-connectivity revenue has risen 20% from the bottom it hit six months ago to $992 million and that it expects it to continue to grow. Broadband revenue plunged 51% to $465 million, but Broadcom thinks this area has now bottomed, as it saw some big orders in the quarter. Industrial sales, which sank 27%, is only about 1% of its revenue at $173 million. The company is looking for a recovery in the second half.