Broadcom stock recorded a 13% surge in premarket trading on Friday supported by solid AI projections for the first quarter of 2025 as well as on the back of strong fourth-quarter earnings performance.
The company is projecting its revenue for Q1 FY2025 to reach $14.6 billion representing a 22% jump year-over-year, while the AI segment is expected to continue on a growth trajectory. The segment should see a revenue increase of around 65% to $3.8 billion.
Broadcom sees AI semiconductor business outgrowing other segments
Broadcom also anticipates maintaining a leading position in the semiconductor market. Commenting on the firm’s performance and its projections, CEO Hock Tan underscored the company’s strategic AI focus.
“The reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business.”
– Tan
Tan also emphasized the company’s strong customer relationships. “We are very well positioned, well on the way to creating a multiyear roadmap for our customers,” said Tan. During its earnings call, analysts also asked about the AI market opportunity with particular reference to Broadcom’s engagement with hyperscale customers.
The company indicated that networking content within AI is expected to increase significantly, while it also highlighted an open approach to mergers and acquisitions.
Despite the strong AI projections, it might not be all rosy for the semiconductor firm. There are some potential risks to watch out for such as potential volatility in the semiconductor market, given its cyclical nature.
The company also faces competitive pressure in the rapidly evolving tech landscape. According to Investing.com, Broadcom faces macro-economic uncertainties that could have an impact on demand, and integration challenges post VMware acquisition.
AI supported Broadcom’s Q4 performance
The company recorded a 4.1% revenue growth to $9.3 billion year-over-year beating Wall Street projections.
According to the company, the robust earnings performance is reflective of growing demand for its semiconductor solutions, especially in networking and AI accelerators. Network revenues jumped 23% year-over-year to close the quarter at $3.1 billion, which represented 42% of the company’s semiconductor revenue.
Tan remained upbeat about the role of AI in the firm’s performance and projects revenue opportunities of between $60 billion and $90 billion by fiscal year 2027, further cementing the company’s commitment to expand its AI offerings.
His projections of an AI-driven growth trajectory are also in line with the growing adoption of AI technology across the globe as industries embrace it for its transformative abilities.
During the period under review, Broadcom recorded $1.5 billion in revenue from generative AI, which accounted for 20% of semiconductor sales.
Advanced networking products, including custom AI accelerators and connectivity solutions, have positioned it as a key supplier to hyperscale data centers and cloud providers.
According to Reuters, demand for the firm’s chips that help move large amounts of data that is used by applications such as ChatGPT has also surged, as businesses double down on investments in GenAI infrastructure.
“Broadcom’s strong performance doesn’t come as a surprise. It’s one of several companies benefiting from AI invigorating the global semiconductor industry, with its AI revenue growing 220% this year.”
– eMarketer analyst Jacob Bourne
Some analysts are, however, downbeat and expressed doubts about the amount of future business from Apple, which is one of Broadcom’s most significant wireless customers. This comes as Apple is working on designing more of its chips in-house and planning to switch to a homegrown chip for Bluetooth and Wi-Fi connections starting next year.
This will replace some parts that Broadcom currently supplies.
Although Broadcom faces intense competition from Nvidia’s ethernet-like Infiniband products, Broadcom still benefits from the expansion of AI data centers as it is one of the largest providers of advanced networking equipment.
“Broadcom will continue to be a relevant player in the custom AI ASIC market together with companies like Marvell as tier-1 hyperscalers will continue to introduce their in-house chips,” Summit Insights senior analyst Kinngai Chan said.
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