2. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 128
Cramer highlighted Broadcom Inc.’s (NASDAQ:AVGO) significant future addressable market and its focus on custom accelerators.
“What the heck is happening in the semiconductor space? There’s been some wild action over the past week. It started last Thursday when Broadcom, which we own for the Charitable Trust, reported technically a mixed quarter. Even though the results weren’t perfect, the stock still soared 24% on Friday before tacking on another 11% yesterday, although it pulled back more than 4% today. So how does Broadcom trade like it got a takeover bid in the aftermath of a seemingly just okay quarter? Because the headline numbers don’t tell the whole story here. Putting all that aside, we learned that Broadcom’s having tremendous success with its AI chips, which is all investors care about right now at the moment, as you know. More important, management made some comments about potential big new customers for the AI chip business.
The focus for Broadcom right now is on developing technology for AI data centers, including and especially, custom accelerators, meaning advanced processors that they call XPUs. This is a business they’ve been building and building throughout the year as Broadcom’s customers raced to build out their AI infrastructure. And with last week’s earnings report, management noted that their AI revenue for fiscal 2024, the 12 months ending in October, was up 220% to a 12.2 billion. 220% and that wasn’t even the best part. Even before this quarter, we knew that Broadcom was making XPUs for at least three hyperscaler customers. Management never confirmed who they are, but they’re widely believed to be Alphabet, Meta Platforms, and ByteDance, which is the company that owns TikTok.
On last week’s call, the Broadcom president, CEO Hock Tan put on a show. He gave more detail than ever before on how he expects his semiconductor business to evolve over the next three years and his vision had investors drooling. First, Tan noted that Broadcom’s non-AI chip business has bottomed and should grow from last year’s base probably at a mid-single-digit clip. Now that doesn’t have much sex appeal, I know that, but it’s still major good news that the legacy part of the business, which by the way still makes up 60% of the company… will no longer be a drag on the rest of the business. Second… major positive developments on this XPU and networking equipment front: Hyperscalers can’t get enough of this stuff. While we knew Broadcom had three major hyperscaler customers and we knew they were spending fortunes with AI infrastructure. Tan explained that he expects each of these three customers will deploy clusters of 1 million XPUs in 2027.
I mean, that is shocking. Tan projects these three customers will represent a serviceable addressable market, that’s his term, SAM, of $60 to $90 billion and that is incredible. For perspective, Broadcom’s entire semiconductor business racked up just over $30 billion in revenue last year. Of course, this one company won’t get that entire serviceable addressable market, but even winning a decent chunk of it would be huge for their AI business. And the cherry on top, it was the news that Broadcom has engaged two additional hyperscaler customers, which represents additional upside to that 2027 addressable market forecast. Now, look, I don’t wanna get too excited about this, but it’s hard not to be, and clearly the market’s more than happy to get ahead of itself and digest that news instantly. So, that’s the reason why the stock jumped to a combined 38% on Friday and Monday and made a lot of club members happy… Okay, long story short, the Charitable Trust’s taking some profits in Broadcom, it’s had such a huge move. We don’t like to be greedy.”
Broadcom (NASDAQ:AVGO) is a prominent company in the semiconductor industry, known for its extensive expertise in the design, development, and supply of semiconductor devices. The company has built a solid reputation over time, becoming a key player in the field. It delivered positive financial results for the fourth quarter of fiscal 2024, which concluded in November. Revenue for the quarter rose by 51%, reaching $14 billion.
A significant portion of this growth, approximately 40 percentage points, was driven by the acquisition of VMware, which took place in the first quarter of the fiscal year. During the earnings call, CEO, Hock Tan, highlighted that the integration of VMware and the growth in AI were the two main factors that contributed to the company’s transformation in fiscal 2024. Tan noted that revenue from AI, fueled by demand for custom AI accelerators (XPUs) and networking, saw a dramatic increase of 220% from fiscal 2023 to fiscal 2024.
AI-related revenue now accounts for 41% of Broadcom’s (NASDAQ:AVGO) semiconductor revenue, playing a significant role in pushing the company’s semiconductor revenue to a record $30.1 billion for the fiscal year. Looking ahead, management expects the momentum from fiscal 2024 to continue into fiscal 2025. The company has forecasted first-quarter revenue of $14.6 billion and an EBITDA of $9.64 billion.
