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

when broadcom tried to buy a rival Qualcomm It invested $120 billion in 2018, but its efforts failed. Qualcomm rejected the offer, and the Trump administration declared the deal a potential threat to national security.

In March of the same year, Broadcom withdrew The bid would have been the largest technology deal in history, and “Qualcomm was clearly a unique and very significant acquisition opportunity,” he said.

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

Broadcom stock soared 24% on Friday, its biggest day ever, pushing the company’s market capitalization above $1 trillion for the first time. The chipmaker has become the eighth member of the technology industry’s 13-figure club. Broadcom shares have risen more than 760% since abandoning Qualcomm’s takeover bid, outpacing Qualcomm’s 165% rise over that period. The S&P 500 rose 119%.

At the time the acquisition plan was announced, Broadcom’s official headquarters were in Singapore, which contributed to the Trump administration’s concerns. Broadcom applied for a change of address to the United States, but President Trump blocked the deal anyway.

Still, Broadcom CEO Hock Tan didn’t make any major decisions. Far from it.

Broadcom has since closed three deals worth more than $10 billion, expanding far outside its core semiconductor market in the process. In July 2018, it agreed to acquire legacy software vendor CA Technologies for $19 billion, and in August 2019, it acquired security software company Symantec for $10.7 billion.

Tan’s biggest bet came in 2022, when Broadcom announced it would buy VMware for $61 billion and enter the server virtualization market. The deal took 18 months to close, but there have been slight delays since then. microsoft’s Activision Blizzard’s $68.7 billion acquisition and Dell’s $67 billion acquisition of EMC top the list of the biggest technology deals in history.

Broadcom “started out as a semiconductor company and kind of moved into infrastructure software over the last six years, and it’s done very 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 combination of chips and infrastructure software for the enterprise,” he said.

Broadcom reported better-than-expected profits in its latest quarterly earnings report Thursday, even though sales were slightly lower than expected. Broadcom’s artificial intelligence business has increased its overall growth rate to a fraction of the size of the company.

in 4th quarter of fiscal yearAI revenue rose 150% to $3.7 billion, with some of the increase coming from Ethernet networking components used to tie together thousands of AI chips.

This resulted in a 51% increase in overall revenue to $14.05 billion. Broadcom’s infrastructure software division earned $5.82 billion in the quarter, nearly tripling from $1.97 billion last year, a figure that also included a big increase from VMware.

In the AI ​​boom, Broadcom has yet to catch up. Nvidiagraphics processing units are used to power the training and execution of the most powerful AI models. Nvidia’s market capitalization has increased more than 170% this year to $3.3 trillion. apple And Microsoft is one of the most valuable publicly traded companies in the world. Broadcom’s value has doubled this year.

Despite being behind Nvidia, Broadcom is still positioned for significant growth. intel We are proceeding with downsizing and restructuring. It far exceeds that advanced micro deviceits value reaches $206 billion after falling 14% this year.

Broadcom calls its custom AI accelerators XPUs, which are different from the GPUs sold by Nvidia. Broadcom announced it has doubled its XPU shipments to “three of our hyperscale customers.” The company did not name the customers, but analysts said the three were meta, alphabet ByteDance, the parent company of TikTok.

“The outlook for AI looks very positive for both GPUs and XPUs,” Cantor analysts wrote in a post-earnings note this week. The firm recommended buying Broadcom stock and raised its 12-month target from $225 to $250. The stock closed Friday at $224.80.

The company that exists today as Broadcom is 2015 merger It is a merger of Avago, which was spun off from Agilent Technologies in 2005, and Broadcom, which was founded in Southern California in 1991. Although Avago was the acquiring entity, the combined company’s name was Broadcom. Tan, who was appointed CEO of Avago in 2006, has been tapped to lead the company.

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

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

But with VMware’s entry, infrastructure software’s share of revenue jumped from 21% in the October quarter of last year to 41% in the just-ended quarter. Even excluding VMware, Broadcom said the business grew 90% year over year.

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

Tan told Kramer in September that Broadcom’s market opportunity continues to grow because of the computing demand for large language models being created and deployed by the biggest tech companies.

“Each new generation of LLM requires several times more compute (2-3x, sometimes more) every year, every time,” says Tan. “I can imagine this being a driver for bigger and bigger computing opportunities, but this is going to be primarily dominated by XPUs.”

alphabet, AmazonMeta and Microsoft spent a combined $58.9 billion in capital spending in the latest quarter, according to the tech research firm. futurium. This represents 63% growth and approximately 18% of total revenue.

Broadcom’s differentiator in the market is its highly expensive customization for AI, with the company promising to help the world’s top technology companies achieve 20% to 30% faster speeds and 25% lower power consumption. It’s making chips, Piper Sandler analyst Harsh Kumar told CNBC’s “Squawk.” ‘On the Street’ airs on Fridays.

“It has to be Google, it has to be Meta, it has to be Microsoft, or oracle “We need to be able to use those chips. These chips are not for everyone,” Kumar said.

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