Shares of Broadcom ( AVGO ) jumped more than 20% on Friday as the chipmaker touted its “huge” opportunity in the artificial intelligence market during a quarterly earnings call the night before.
Broadcom CEO Hock Tan said the company expects its custom AI chips to generate between $60 billion and $90 billion in revenue over the next three years from its three existing hyperscaler customers, which 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 that are “in advanced development for their own next-generation AI XPUs,” which could drive further revenue. Media reports, citing anonymous sources, have indicated that these new customers could include ChatGPT maker OpenAI and Apple (AAPL).
“We see our opportunity in AI over the next three years as enormous,” Tan said in a call with investors on Thursday evening.
Broadcom’s earnings on Friday sent its stock up about 98% this year, sending its share price to a record high of $221 and sending its market cap rocketing past the $1 trillion mark.
According to The Information, Apple is reportedly working with Broadcom to develop an AI server chip. The move by tech giants to make their own server chips is aimed at lowering costs and reducing their dependence on Nvidia’s (NVDA) GPUs (graphics processing units). According to Reuters and Bloomberg, OpenAI is reportedly making a similar move in partnership with Broadcom.
Broadcom makes custom chips for data centers, consumer electronics such as smartphones and laptops, and electric vehicles. The company has expanded into making enterprise software with partnerships with Microsoft (MSFT) and Google (GOOG).
Still, there are concerns that Big Tech may not be able to maintain its spending on AI infrastructure if it cannot meaningfully monetize the new technology. OpenAI suffered approximately $5 billion in losses in 2024. And only 4% of American workers actually use AI on a daily basis, according to a recent Gallup poll cited by Bloomberg.
Broadcom’s opportunities in AI chips are not reflected in the other parts of its semiconductor business. Overall, semiconductor revenues rose 12% in the fourth quarter from last year to $8.2 billion. However, that masked a difference between the AI chips and the non-AI chips. AI chip sales grew 150% to $3.7 billion, while non-AI semiconductor sales fell 23% to $4.5 billion.
“The reality for this company is that the AI semiconductor business will quickly outgrow the non-AI semiconductor business,” Tan said.
This trend is reflected in the sector as a whole. The AI chip market is expected to grow by 74% by 2025, while the semiconductor market is expected to grow by just 12% next year, according to consultancy International Business Strategies, which tracks industry data. Data from IBS shows that the AI chip market – also known as the accelerator chip market – will outpace the industry as a whole by 2030.
Broadcom’s profits for the October period were “reasonable,” Bernstein analyst Stacy Rasgon wrote in a note to investors early Friday. Adjusted quarterly earnings per share of $1.42 were slightly ahead of analysts’ forecasts of $1.39, and revenue of $14.1 billion was in line with expectations.
“Hock might look good in a leather jacket,” Rasgon joked, referring to Nvidia CEO Jensen Huang’s now-famous black leather jacket. Rasgon raised his price target for the stock from $195 to $250 and maintained his Outperform rating.
Meanwhile, Raymond James analyst Srini Pajjuri said he is “reluctant to buy the stock at current levels” as its fiscal 2025 price-to-earnings ratio is 33 times higher. Pajjuri maintained its Market Perform rating.
Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.
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