Broadcom soars as demand for AI chips power forecast raise

Broadcom soars as demand for AI chips power forecast raise


Broadcom soars as demand for AI chips power forecast raise

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(Reuters) - Broadcom surged more than 13% on Thursday as its upbeat annual forecast highlighted an insatiable demand for chips used in powering AI-focused technology, while its announcement of a stock split added to the euphoria.

The rising adoption of generative AI has been driving demand for companies such as Broadcom that provide chips and networking tools to support these intensive applications.

Broadcom, whose shares have risen 76% in the past 12 months and closed at $1495.5 on Wednesday, joined Nvidia in trying to make its stock more affordable through a 10-for-1 split.

"It's a sure-fire way to send your stock soaring," Triple D Trading analyst Dennis Dick said, adding the move was "right out of Nvidia's book".

If the gains hold, Broadcom will add more than $90 billion to its market value.

Broadcom now trades at about 28 times expected earnings, compared with a price-to-earnings ratio of about 40 for Nvidia and rival Marvell Technology.

The company on Wednesday raised its forecast for annual revenue from AI-linked chips to $11 billion from $10 billion. It also raised its annual revenue and core profit projections.

Broadcom said it will make the next generation of custom AI chips for "hyperscaler" clients, which are widely considered to be Alphabet's Google and Meta Platforms. The company said in March it added a third custom AI chip customer.

"We continue to see Broadcom as incredibly well-positioned to benefit from rising generative AI investment in the long term," Morningstar analysts said.

Broadcom's software division has benefited from its buyout of VMware, which added $2.7 billion to its second-quarter revenue.

"After this stunning earnings report and a 10-for-1 stock split announcement. If you don't hold Broadcom, you have a hole in your portfolio," said Paul Marino, chief revenue officer of GraniteShares, which holds Broadcom stock through its ETFs.