Broadcom's Trillion-Dollar Run: Analyst Expects ASIC To Take 10%-15% Market Share Backed By AI Compute De

Application-specific Integrated Circuit (ASIC) vendor Broadcom Inc (NASDAQ:AVGO) entered the trillion-dollar valuation club in 2024, rubbing shoulders with Nvidia Corp (NASDAQ:NVDA) and Taiwan Semiconductor Manufacturing Co (NYSE:TSM).

Broadcom stock surged over 634% in the last five years and over 84% in the previous 12 months.

Gartner estimates worldwide semiconductor revenue reached $626 billion in 2024, up 18.1%. Graphics processing units (GPUs) and AI processors for data center applications (servers and accelerator cards) were the key drivers for the chip sector in 2024.

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Gartner expects the revenue to reach $705 billion in 2025, backed by demand for AI and generative AI (GenAI) workloads, which led data centers to become the second-largest semiconductor market in 2024, behind smartphones.

Broadcom was ranked sixth amongst global semiconductor vendors based on its 2024 revenue. Samsung Electronics (OTC:SSNLF) reclaimed the top spot from Intel Corp (NASDAQ:INTC) thanks to a strong rebound in memory device prices. Intel’s AI PCs and the Core Ultra chipset failed to offset the limited success of its AI accelerator offering and the modest growth in its x86 business. Nvidia moved from the fifth position to the third position. Apple Inc (NASDAQ:AAPL) moved from eighth to ninth position.

However, Broadcom’s enterprise value is over $1 trillion, compared to Samsung’s $183 billion and Intel’s $113 billion. Nvidia’s is over $3 trillion, and Apple’s is over $3.5 trillion.

In fiscal year 2024, Broadcom’s revenue was $51.6 billion (up by 44%), with semiconductor revenue accounting for $30.1 billion and infrastructure software revenue accounting for $21.5 billion. Out of total semiconductor revenue, AI revenue was $12.2 billion (up by 220%, driven by its AI XPUs and Ethernet networking portfolio).

Broadcom’s infrastructure software revenue was $21.5 billion, courtesy of the integration of VMware. The company doubled the AI XPU shipments to hyperscale customers.

China accounted for 20.3% of Broadcom’s revenue in fiscal 2024, down from 32.2% in fiscal 2023 and 35.0% in fiscal 2022, as per regulatory filing. It marks the repercussions of the U.S. semiconductor embargo against China, citing national security interests.

Also, China released the DeepSeek AI model that said it could outdo the likes of OpenAI at a fraction of the cost, leading to a selloff in the U.S. tech sector.

The U.S. tech sector is already grappling with investor concerns over the sustainability of the huge AI investments by the U.S. Big Techs.

Last December, Broadcom chief Hock Tan told investors that Broadcom could generate tens of billions of dollars in additional annual revenue from AI chips by 2027. This was backed by the AI frenzy from U.S. Big Tech giant OpenAI and Elon Musk’s xAI, which he expected to continue for at least the next decade.

Tan expects customers to build clusters of up to 1 million AI chips by 2027. He flagged that even 1 million chips may not suffice the AI ambitions of OpenAI and Anthropic.

Meanwhile, analysts expect Broadcom to gain from the DeepSeek selloff as AI shifts toward cost-effective, high-performance silicon solutions.

Last December, reports indicated Apple was working with Broadcom to develop a server chip designed for AI tasks.

Also, in 2024, Broadcom bagged multi-generational AI ASIC programs with OpenAI and a fifth major customer, positioning itself for an over $150 billion AI semiconductor opportunity over the next five years, as per JPMorgan’s Harlan Sur.

The analyst Sur flagged Broadcom is on track to ramp Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) Google’s next-gen 3nm TPU AI processor with expected revenues of over $8 billion in 2025 and $10 billion in 2026.

Sur expects Meta Platforms Inc (NASDAQ:META) to become Broadcom’s next multi-billion dollar customer. Broadcom expects VMware’s Annualized Billing Value (ABV) to top $3 billion in the first quarter, up from $2.7 billion sequentially.

According to its regulatory filing, Taiwan Semiconductor manufactured ~95% of Broadcom’s wafers during fiscal year 2024. Still, Broadcom reported over 64% gross margin in fiscal 2024, which indicates its pricing power.

BofA Securities’ Vivek Arya expressed continued optimism over Broadcom’s prospects, which are backed by an AI compute/networking demand frenzy. However, he does not expect Nvidia GPUs to lose their 80%+ share. Arya flagged ASICs taking over a 10%-15% share of the overall accelerator market.

Broadcom has an EV/EBITDA multiple of 47.9x versus Nvidia’s 41.7x and Taiwan Semiconductor’s 13.8x, signifying the premium valuation the former two enjoy backed by their AI moat.

Broadcom has ~599.2 million shares in the U.S. ETF market. The largest ETF holder is the Invesco QQQ Trust (NASDAQ:QQQ), with ~90.58 million shares.

Price Action: AVGO stock is down 2.10% at $226.31 at last check Friday.

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