Investors are Losing Their Minds Over This Chipmaker's Massive AI Opportunity. Here's Why...

Would ya look at that, Broadcom just hit a $1 trillion market cap. That’s right, the chipmaker officially entered the Tech Bro Trillionaire Club on Friday after its stock soared 24% post-earnings, all while stunning Wall Street into submission.

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In short, Broadcom reported quarterly revenue of $14.05 billion, which, okay, technically missed analysts' $14.07 billion forecast by a smidge. But the Street didn’t seem to care—probably because that’s still a 41% year-over-year jump, and one I call friggin’ massive. Additionally, net profit came in at a nice $4.3 billion, up from $3.5 billion a year ago. And earnings per share came in at $1.42, beating expectations by a few pennies.

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But the real clinic though? Was Broadcom’s fiscal Q1 guidance of $14.6 billion in revenue, which crushed estimates. CEO Hock Tan wasn’t shy about hyping the company’s AI pipeline, projecting it could rake in $60 billion to $90 billion by 2027. For context, that's like going from Drew Bledsoe's backup to the absolute GOAT in just three years. 

The reason? AI, of course. Specifically, the company’s custom AI chips and networking solutions for hyperscaler clients (read: the Googles and Metas of the world). Tan casually mentioned that Broadcom snagged two new major hyperscaler customers, bringing its total to five. Meanwhile, analysts are now debating whether Broadcom will dominate AI silicon or just play second fiddle to Nvidia, which has been hogging the AI spotlight like it’s the Taylor Swift of semiconductors.

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However, to battle that, Broadcom’s thesis is simple: as AI shifts from the heavy lifting of training models to the more day-to-day task of inference, there’s room for other players to shine. In non-nerd terms, Nvidia’s chips may be the Ferrari for AI’s racetrack, but Broadcom is building the reliable Toyota Camry for everyday AI commutes.

For this reason, Wall Street analysts couldn’t get their price targets raised fast enough. UBS bumped its target from $200 to $220, while Bernstein shot for the stars with $250, all while humorously suggesting Hock Tan might want to invest in a leather jacket à la Nvidia’s Jensen Huang. 

(Source: The Street) 

What’s more, is that this surge officially clinched a 107% YTD for Broadcom shareholders, making it one of the most explosive darlings of 2024’s AI hype machine. Meaning, this move along with the company’s relatively low 12-month forward P/E ratio of 29.8 compared to Nvidia’s 31.03 only sweetens the deal for value-conscious investors.

Now with that said, while Broadcom’s AI narrative is straight fire right now, let's not forget that the company is playing in a market where Nvidia is the sitting OG. Some analysts are warning that Broadcom’s projected 70% AI market share could shrink as competition heats up. As TD Cowen put it, this is "difficult to prove/disprove, but is huge." Translation: We’re all just throwing spaghetti at the AI wall to see what sticks.

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For now, though, Broadcom is basking in its moment, and investors are dreaming big. Whether AI’s gold rush pans out as promised or fizzles out, one thing is clear: Broadcom just gave the market a reason to collectively lose their minds that mimics the Tickle Me Elmo mania of 1996. 

But, but, but… even with all the hype right now, don’t forget to filter this hype through a brain-cell, friends, and place your bets accordingly. In the meantime, keep an eye on Broadcom and do your due diligence, because what catapult ups—most likely will (at some point) come crashing down. As always, stay safe and stay frosty! Until next time… 

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Stocks.News holds positions in Google and Meta Platforms as mentioned in the article.