Broadcom's Market Value Soars on AI Chip Demand Forecast

Shares of Broadcom surged by 14% on Friday, bringing the chipmaker closer to a market value of $1 trillion. The company anticipates a continuous rise in demand for its custom AI chips in the coming years, which has significantly boosted its stock performance.

Broadcom is set to add approximately $120 billion to its current market value of $843 billion, based on premarket share movements. Additionally, the company's forecasted revenue for the first quarter exceeded Wall Street estimates, further driving the stock's rise. Rival Marvell Technology also saw its shares gain 5.3%.

Broadcom has emerged as a key supplier for major tech companies aiming to reduce their reliance on expensive, supply-constrained AI processors from Nvidia. These companies are opting to develop their own advanced custom chips, a trend that has driven Broadcom's shares up by over 62% this year.

CEO Hock Tan highlighted the significant revenue potential in the AI market, estimating an opportunity between $60 billion and $90 billion by fiscal 2027. Broadcom has already secured two major hyperscaler customers, referring to large cloud firms. The company captured more than $12 billion of the total serviceable AI revenue of between $15 billion and $20 billion in fiscal 2024, which includes both its custom AI chips and networking equipment used in data centers.

Analysts at TD Cowen extrapolated Broadcom's ~70% market share to fiscal 2027, suggesting AI revenue could exceed $50 billion. At least 16 brokerages raised their price targets on Broadcom's shares, pushing the median view to $210, representing a 16% upside from the stock's last closing price. Broadcom's 12-month forward price-to-earnings ratio stands at 29.8, compared with Nvidia's 31.03 and Marvell's 41.14.

Bernstein analyst Stacy Rasgon noted that Broadcom's AI story seems to be gaining momentum, potentially mirroring Nvidia CEO Jensen Huang's signature success in the AI sector.