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

When Broadcom tried to get a competitor Qualcomm In 2018, his attempts for $120 billion were in vain. Qualcomm rejected the offer and the Trump administration announced agreement is a potential threat to national security.

Broadcom in March of that year withdrew would be the largest technology deal on record, and “Qualcomm was clearly a unique and very large acquisition opportunity,” he said.

As it turns out, Broadcom didn’t need to.

Broadcom shares increased by 24% on Friday, it was their best day yet, and the company’s market cap surpassed $1 trillion for the first time. The chipmaker became the eighth member of the technology’s 13-figure club. Broadcom shares have soared more than 760% since Qualcomm rejected its bid, outpacing Qualcomm’s 165% gain. The S&P 500 is up 119%.

At the time of the announced acquisition attempt, Broadcom was officially headquartered in Singapore, much to the dismay of the Trump administration. Broadcom appealed redomisile In the US, but Trump blocked the deal anyway.

Still, Broadcom CEO Hock Tan didn’t shy away from big swings. Far from it.

Broadcom has since closed three deals worth $10 billion or more, expanding far beyond the core semiconductor market in the process. This agreed to buy In July 2018, it acquired CA Technologies, a legacy software provider and security software company, for $19 billion. Symantec For $10.7 billion in August 2019.

Tan’s biggest bet came in 2022, on Broadcom he said he got it VMware is entering the $61 billion server virtualization market. It took 18 months to close the deal and it’s still ongoing Microsoft’s It got 68.7 billion dollars Activision Blizzard and Dell has $67 billion Acquisition of EMC on the list of biggest tech deals.

Broadcom “started as a semiconductor company, and over the last six years we’ve kind of moved into infrastructure software, and that’s been going really well,” Tan said in an interview with CNBC’s Jim Cramer in September. “The recent acquisition of VMware was another step toward creating a more balanced mix of chips and enterprise infrastructure software,” he said.

Broadcom reported better-than-expected profit in its latest quarterly earnings report on Thursday, although revenue came in just shy of estimates. Broadcom’s AI business has boosted overall growth to levels typically reserved for a company a fraction of its size.

in the year fourth fiscal quarterAI revenue grew 150% to $3.7 billion, with some of that growth coming from parts of the ethernet network used to connect thousands of AI chips.

This led to a 51% increase in total revenue to $14.05 billion. Broadcom’s infrastructure software division posted revenue of $5.82 billion in the quarter, nearly triple the $1.97 billion a year ago, which included a big boost from VMware.

Broadcom hasn’t been able to keep up with the AI ​​boom Nvidiaits graphics processing units are used to train and run the most powerful AI models. Nvidia’s market value has risen more than 170% this year to $3.3 trillion apple and Microsoft are among the world’s most valuable public companies. Broadcom has doubled in value this year.

After Nvidia, Broadcom is positioned for strong growth at a time when the former chip titan is still there. Intel is reduced and restructuring. And it’s too late Advanced Micro Devicesthis year it is worth 206 billion dollars, down 14%.

Broadcom refers to dedicated AI accelerators such as XPUs, which are different from the GPUs that Nvidia sells. Broadcom said it has doubled its supply of XPUs to “our three hyperscale customers.” The company does not name the customers, but analysts say it has three customers Meta, Alphabet and TikTok parent ByteDance.

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

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

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

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

But with the addition of VMware, infrastructure software grew from 21% of revenue in the October quarter last year to 41% in the period just ended. Excluding VMware, Broadcom said business was up 90% from a year ago.

The company said it expects infrastructure software revenue to grow 41% year-over-year to $6.5 billion in the current quarter, while semiconductor revenue will increase 10% to $8.1 billion. The company said AI revenue will grow 65% year-over-year to $3.8 billion.

Broadcom’s market opportunity continues to grow due to the computational demands for large language models created and implemented by the largest technology companies, Tan told Cramer in September.

“Each new generation LLM requires many x – 2-3x, maybe more – calculations every time, every year,” he said. “You can imagine that this is a drive towards greater and greater computing capabilities that will be largely absorbed by XPUs.”

alphabet, AmazonMeta and Microsoft spent a combined $58.9 billion on capital expenditures last quarter, according to the tech research firm. Futuriom. That’s a 63% increase and roughly 18% of total revenue.

Broadcom’s differentiator in the market is that it makes very expensive custom chips for artificial intelligence with the promise of helping the world’s top tech companies move 20% to 30% faster and use 25% less power, Piper Sandler analyst Harsh Kumar told CNBC’s Squawk. on the street” on Friday.

“You have to be Google, you have to be Meta, you have to be Microsoft or one Oracle to be able to use those chips,” Kumar said. “These chips are not for everyone.”

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