Broadcom's long road to the trillion-dollar club and Trump's role

when Broadcom I tried to buy a competitor Qualcomm For $120 billion in 2018, its efforts have been thwarted. Qualcomm rejected the offer and the Trump administration declared the deal a potential national security threat.

In March of that year, Broadcom withdrew the offer, which would have been the largest technology deal on record, saying: “Qualcomm was clearly a unique and very significant acquisition opportunity.”

As it turns out, Broadcom didn't need it.

Broadcom shares rose 24% on Friday, their best day ever, and lifted the company's market value above $1 trillion for the first time. The chipmaker has become the eighth member of the 13-digit tech club. Since abandoning Qualcomm's bid, Broadcom shares have risen more than 760%, outpacing Qualcomm's 165% gain over that stretch. The S&P 500 rose 119%.

At the time of the announced acquisition effort, Broadcom's official headquarters were in Singapore, which played into the Trump administration's concerns. Broadcom applied to resettle in the US, but Trump blocked the deal anyway.

However, Broadcom CEO Hock Tan was not deterred from taking big swings. Far from it.

Since then, Broadcom has closed three deals worth $10 billion or more, venturing outside its core semiconductor market in the process. It agreed to acquire legacy software company CA Technologies for $19 billion in July 2018, and snapped up security software company Symantec for $10.7 billion in August 2019.

Tan's biggest bet came in 2022, when Broadcom said it bought VMware for $61 billion, jumping into the server virtualization market. The deal took 18 months to complete, and is only ongoing Microsoft Dell's acquisition of Activision Blizzard for $68.7 billion, and Dell's purchase of EMC for $67 billion, are among the largest technology deals ever.

“Broadcom started out as a semiconductor company, and over the last six years, we've kind of moved into infrastructure software, and that's gone very well,” Tan told CNBC's Jim Cramer in a September interview. “The recent acquisition of VMware was basically another step in the direction of creating a very balanced mix between” chips and enterprise-oriented infrastructure software, he said.

Broadcom reported better-than-expected earnings in its latest quarterly earnings report on Thursday, even as revenue came in below estimates. Broadcom's AI business has lifted overall growth to rates typically reserved for a small fraction of a company's size.

In the fourth fiscal quarter, AI revenue increased 150% to $3.7 billion, with some of that growth coming from parts of the Ethernet networks used to connect thousands of AI chips together.

This resulted in an overall revenue increase of 51% to $14.05 billion. Broadcom's infrastructure software division generated revenue of $5.82 billion during the quarter, nearly triple last year's revenue of $1.97 billion, a figure that includes a big boost from VMware.

With the AI ​​boom, Broadcom hasn't quite been able to keep up Nvidiawhose GPUs are used to power and run the most powerful AI models. Nvidia's market cap has swelled more than 170% this year to $3.3 trillion, behind only… apple Microsoft is among the most valuable public companies in the world. Broadcom's value has doubled this year.

While Broadcom lags behind Nvidia, it is still positioned for massive growth at a time when the former chip giant was Intel It is downsizing and restructuring. It's also been overdone a lot Advanced micro devicesWhich amounts to $206 billion after falling by 14% this year.

Broadcom refers to its custom AI accelerators as XPUs, which is different from the GPUs sold by Nvidia. Broadcom said it has doubled shipments of XPUs to “our three hyperscale customers.” The company did not mention the names of the clients, but analysts say they are the three dead, alphabet And TikTok's parent, ByteDance.

“The outlook for AI looks very bright for both GPUs and XPUs,” analysts at Cantor wrote in a note after this week’s earnings report. The company recommends buying Broadcom shares and raised its 12-month target to $250 from $225. The stock closed Friday at $224.80.

The company that exists today as Broadcom is the product of the 2015 merger of Avago, which spun off Agilent Technologies in 2005, and Broadcom, which started in Southern California in 1991. While Avago was the acquiring entity, the combined company was acquired by the combined company. Broadcom name. Tan, who was appointed CEO of Avago in 2006, has been tapped to lead it.

Broadcom's revenue in fiscal 2016 was $13.2 billion, and its largest business was semiconductors for set-top boxes and broadband access.

The company's market capitalization exceeded $100 billion in 2018, at which time wired infrastructure was still its main source of revenue. Broadcom changed its financial reporting in late 2019 to focus on semiconductor solutions and infrastructure software, with the former accounting for about 73% of revenue in 2020.

But with the addition of VMware, infrastructure software jumped from 21% of revenue in the first quarter of last year to 41% in the period that just ended. Even excluding VMware, Broadcom said business grew 90% from the previous year.

The company said it expects infrastructure software revenue to increase 41% year-over-year in the current quarter to $6.5 billion, while semiconductor revenue will rise 10% to $8.1 billion. The company said that artificial intelligence revenues will jump 65% year over year to reach $3.8 billion.

Broadcom's market opportunities continue to grow due to the computing demands of large language models being created and deployed by the largest technology companies, Tan told Cramer in September.

“Each new generation of LLM requires several x — 2-3x, perhaps more — amount of computation, every time, every year,” Tan said. “You can imagine this is a drive toward a bigger and bigger compute opportunity, which will be largely taken up by XPUs.”

alphabet, AmazonMeta and Microsoft spent a combined $58.9 billion on capital expenditures last quarter, according to technology research firm Futurium. This represents growth of 63% and is equivalent to approximately 18% of total revenue.

What sets Broadcom apart in the market is that it makes expensive custom AI chips for the world's largest technology companies with the promise of helping them move 20% to 30% faster and use 25% less power, Piper Sandler analyst Harsh Kumar told ” “Squawk” on CNBC. On the street on Friday.

“It has to be Google, it has to be Meta, it has to be Microsoft or Microsoft oracle “To be able to use those chips,” Kumar said. “These chips are not for everyone.”

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