Broadcom is poised for substantial growth over the coming three years, driven by the surging opportunities in artificial intelligence (AI) and the acquisition of two major customers, as indicated by BofA Securities in a recent analysis. On the heels of reporting stronger-than-anticipated fiscal fourth-quarter earnings, the chipmaker noted its revenue fell short of Wall Street projections.
However, its AI revenue saw a significant leap, rising to approximately $12.2 billion from just $3.8 billion in the previous fiscal year, spearheaded by growth in custom AI accelerators, or XPUs, and networking, shared Chief Executive Hock Tan during an earnings conference call, as captured in a FactSet transcript. Tan expressed that the company perceives a massive AI opportunity over the next three years, sharing that Broadcom currently serves three hyperscale customers.
Each of these clients plans to deploy 1 million XPU clusters by 2027 across a singular fabric. This deployment stands to represent an AI revenue serviceable addressable market (SAM) ranging from $60 billion to $90 billion in that year alone, Tan elaborated. Additionally, Tan mentioned, "To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next-generation AI XPUs.
We have line of sight to develop these prospects into revenue-generating customers before 2027, which could significantly expand this SAM." Subsequently, Broadcom's shares surged nearly 20% in Friday trading, pushing its market capitalization beyond $1 trillion. The stock has experienced a remarkable 93% increase thus far in 2023. BofA anticipates the company's earnings per share (EPS) could reach between $11 and $12 by 2027, contingent on AI sales hitting around $53 billion.
Notably, there remains room for further EPS upside. Broadcom looks poised to maintain its supply position with Apple, despite earlier expectations of declining content, according to BofA's previous assessments. For the upcoming fiscal first quarter, Broadcom projects a revenue of $14.6 billion. BofA analyst Vivek Arya remarked, "Near-term results were in line, though the postponement of certain software deals from the fourth quarter to the first quarter helped the company guide expectations consistently versus concerns regarding potential shortfalls due to seasonal headwinds." Furthermore, the brokerage adjusted its pro forma EPS estimate for Broadcom to $6.27 from $6 for 2025, and raised it to $7.50 from $7.31 for 2026.
Arya noted, "Our forecast implies about a 15% sales and 20% pro forma EPS growth trajectory over the next three years across a diversified portfolio of silicon and infrastructure software." As a testament to this optimism, BofA increased its price target on Broadcom's stock from $215 to $250 while reiterating a buy rating. Nonetheless, Arya cautioned, "Broadcom and its compute/networking peers remain susceptible to fluctuations in investor sentiment towards AI stocks, particularly concerns regarding return on investment and diminishing scaling advantages that may arise past 2025." Despite Broadcom's dominance in custom chips, Arya advised that competition from Nvidia, particularly in merchant silicon and with enterprise customers, remains a critical factor driving greater market share in the public cloud.
The current trading details include a price of $214.58, a change of +$33.92, and a percent change of +18.77..