Broadcom stock rallies 6% on upbeat earnings; AI chip sales expected to hit $100 billion by 2027

Shares of heavyweight chipmaker Broadcom jumped 6% in Thursday's trade, reaching the day's high of $336.12 per share, even as key Wall Street averages were trading with losses.

The rally in the stock on 5 March was triggered by the company's strong set of results for its fiscal first quarter and a robust forecast for the current period. The results lifted sentiment toward the chipmaker, which had remained under pressure this year so far due to valuation concerns.

Post the US stock market close on Wednesday, the company announced its financial results.

Broadcom earnings

Broadcom, which supplies semiconductors and infrastructure software, posted sales of $19.3 billion during the fiscal first quarter, which ended on 1 February. Its net income jumped to $7.35 billion from $5.5 billion in the same quarter of last year.

The company’s revenue from the AI segment more than doubled to $8.4 billion in the period, a faster clip than it had anticipated. Amid a sharp jump in AI revenue, the company projects AI chip revenue to be $10.7 billion in the current quarter, suggesting that reaching the $100 billion annual pace would mark a significant leap.

Alphabet, Microsoft, Amazon, and Meta Platforms are expected to spend more than $600 billion to build AI infrastructure this year, boosting demand for chips, servers, storage, and networking equipment.

Overall, the company expects quarterly revenue to be about $22 billion in the fiscal second quarter, which ends on 3 May, higher than analysts’ estimates.

Beyond Broadcom’s custom AI chip work, the company continues to update its networking equipment to better connect the computing power required to run artificial intelligence models. CEO Hock E. Tan has also built a large software operation through acquisitions.

Meanwhile, the company also announced plans to buy back as much as $10 billion in stock through the end of the year.

Broadcom had seen its valuation surge in recent years, helped by deals to make custom AI chips for companies such as OpenAI and Anthropic. In terms of its performance on Wall Street, it, along with Nvidia, has remained lower so far this year amid investor concerns over whether heavy spending on AI will generate sufficient returns to justify lofty tech valuations.

Broadcom shares still down 21% from recent highs

The chipmaker’s shares are down about 21% from a December record high of $414.60, well underperforming the S&P 500 Index.

The selloff is part of investors’ broader rotation away from the largest technology companies due to fears about the sustainability of the hundreds of billions of dollars being committed to developing artificial intelligence capabilities.

Broadcom, which is the seventh-most valuable company in the S&P 500 at about $1.5 trillion, is a chipmaking partner with Alphabet Inc. and other AI giants, making it a key beneficiary of the ongoing surge in AI infrastructure spending.

(With inputs from Reuters, Bloomberg)

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