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

when Broadcom tried to buy the rival Qualcomm For $120 billion in 2018, his efforts were thwarted. Qualcomm he rejected the offer and the Trump administration declare the deal is a potential threat to national security.

In March of that year, Broadcom he retired offer, which would have been the largest technology deal on record, and said, “Qualcomm was clearly a unique and very large acquisition opportunity.”

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

Broadcom stock It increased by 24% on Friday, its best day ever, and the company’s market cap surpassed $1 trillion for the first time. The chipmaker became the eighth member of the 13-figure club in technology. Since the cancellation of Qualcomm’s bid, Broadcom’s stock has risen more than 760%, outpacing Qualcomm’s 165% gain during that period. The S&P 500 is up 119%.

At the time of the announced acquisition effort, Broadcom’s official headquarters were in Singapore, which raised concerns for the Trump administration. It was introduced by Broadcom place of residence In the US, but Trump blocked the deal anyway.

However, Broadcom CEO Hock Tan wasn’t taking too much of a beating. Far from it.

Broadcom has since closed three deals worth $10 billion or more, venturing away from its semiconductor market in the process. It agree to acquire Software vendor CA Technologies for $19 billion in July 2018, acquiring security software company Symantec for $10.7 billion in August 2019.

Tan’s biggest bet was in 2022, Broadcom he said he was buying it VMware for $61 billion, jumping into the server virtualization market. The deal took 18 months to close, and it stands alone Microsoft’s $68.7 billion acquisition Activision Blizzard and Dell’s $67 billion Buying EMC on the list of the greatest tech deals ever.

Broadcom “started as a semiconductor company and over the last six years we’ve moved into infrastructure software, which has gone really well,” Tan told CNBC’s Jim Cramer in a September interview. “The recent acquisition of VMware was essentially another step in the direction of creating a very balanced mix of enterprise-oriented chips and infrastructure software,” he said.

Broadcom posted better-than-expected earnings in its latest quarterly earnings report on Thursday, although revenue fell short of estimates. Broadcom’s artificial intelligence business has boosted overall growth to rates typically reserved for companies a fraction of its size.

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

This led to a 51% overall increase in revenue to $14.05 billion. Broadcom’s infrastructure software division earned $5.82 billion in the quarter, nearly tripling the $1.97 billion a year ago, a figure that was heavily boosted by VMware.

Within the AI ​​boom, Broadcom hasn’t quite kept pace Nvidiawhose graphics processing units are being used to power the training and operation of the most powerful AI models. Nvidia’s market cap has grown more than 170% this year to $3.3 trillion, just back. the apple and Microsoft among the most valuable public companies in the world. Broadcom has doubled in value this year.

While trailing Nvidia, Broadcom has still positioned itself for strong growth in the former chip titan’s era. Intel and it is decreasing restructuring. It is also much exceeded Advanced micro-devicesValued at 206 billion dollars, after a 14% drop this year.

Broadcom refers to its custom AI accelerators as XPUs, which are different than the GPUs sold by Nvidia. Broadcom said it doubled XPU shipments to “all three of our hyperscale customers.” The company is not naming the clients, but analysts say all three are Meta, the 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 stock and raised its 12-month price target to $250 from $225. Shares closed Friday at $224.80.

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

Broadcom’s revenue in fiscal 2016 was $13.2 billion, and its biggest business was semiconductors for set-top boxes and broadband access.

The company’s market cap exceeded $100 billion in 2018, at which point cable infrastructure was still the main source of revenue. Broadcom changed its financial reporting in late 2019 to focus on semiconductor solutions and infrastructure software, with the former accounting for about 73% of revenue. 2020.

But with the addition of VMware, infrastructure software has gone from 21% of revenue in the October quarter last year to 41% in the period just ended. Even excluding VMware, Broadcom said the business grew 90% from a year earlier.

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

Broadcom’s market opportunity continues to grow because of the large computing demands for language models being created and deployed by the largest technology companies, Tan told Cramer in September.

“Each next-generation LLM requires x — 2-3x, maybe more — computation, every time, every year,” Tan said. “You can imagine that’s a driver for greater and greater compute capability, and that’s going to be largely driven by XPUs.”

alphabet, AmazonMeta and Microsoft spent $58.9 billion in capital expenditures last quarter, according to the technology research firm. the future. This represented an increase of 63% and equaled about 18% of revenue.

Broadcom’s market distinction is that it’s making very expensive custom chips for AI among the world’s tech companies, with promises to help them move 20% to 30% faster and use 25% less power, Piper Sandler analyst Harsh Kumar told CNBC’s “Squawk as he said to on the street” on Friday.

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

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