Broadcom shares soar as chipmaker forecasts ‘massive’ AI growth

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Broadcom shares soared 18 per cent in pre-market Wall Street trading, sparking a rally in tech shares after the chipmaker posted huge gains in artificial intelligence revenues and projected “massive” growth in the field.

Futures contracts indicated the tech-heavy Nasdaq Composite would open 0.8 per cent higher and the broader S&P 500, 0.4 per cent. Shares in Nvidia, the leading AI-related semiconductor maker, were up 1.6 per cent. 

Broadcom’s confident outlook for its business supplying the chips needed for generative AI caught analysts’ attention even as its quarterly results after the close on Thursday were roughly in line with market expectations. The group’s AI-linked revenues soared 220 per cent in the fourth quarter from the same period in 2023.

“We see our opportunity over the next three years in AI as massive,” Hock Tan, its chief executive, told analysts, discussing the investing plans of its biggest customers. “For each of them, this represents a multi-year, not a quarter-to-quarter journey.”

Tan estimated that the addressable AI market for Broadcom by 2027 would be between $60bn and $90bn, from less than $20bn currently. 

“We are very well positioned to achieve a leading market share in this opportunity,” Tan added, though he warned the gains would not be linear but vary each quarter. 

Analysts at JPMorgan Chase raised their price target for the stock to $250 from $210, adding: “Even applying a more conservative market share assumption, we can see Broadcom’s AI business growing at a 40-50 per cent-plus revenue (compound annual rate) over the next several years.”

Shares in Broadcom have gained 62 per cent this year to about $180 before Thursday’s results, trailing Nvidia, the AI chip leader, which has gained 180 per cent. Broadcom shares traded around $213 in pre-market trading on Friday, leaving the company set to add more than $140bn in market value.

Leading AI companies such as OpenAI have been seeking ways to reduce their reliance on Nvidia’s cutting-edge technology and deepen their supply chains. 

“AI is still driving the bus,” said analysts at Citigroup.