Broadcom's long road to the trillion-dollar club, and Trump's place

When Broadcom he tried to buy a competitor Qualcomm for $120 billion in 2018, his efforts were thwarted. Qualcomm declined the offer and the Trump administration confirmed the agreement that could be a threat to national security.

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

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

Broadcom shares increased by 24% Friday, their best day ever, and lifted the company's market cap past $1 trillion for the first time. The chipmaker became the eighth member of the 13-figures tech club. Since abandoning its Qualcomm bid, Broadcom shares are up more than 760%, outpacing Qualcomm's 165% gain over the period. The S&P 500 is up 119%.

At the time of the announcement of the acquisition effort, Broadcom's official headquarters were in Singapore, which played into the concerns of the Trump administration. Broadcom registered to redeem in the US, but Trump canceled the deal anyway.

However, Broadcom CEO Hock Tan has not been deterred from taking big swings. Far from it.

Broadcom has since closed three deals worth $10 billion or more, and has penetrated well outside its core semiconductor market in the process. he is he agreed to inherit legacy software vendor CA Technologies for $19 billion in July 2018, and snapped up a security software company Symantec for $10.7 billion in August 2019.

Tan's biggest bet came in 2022, when Broadcom he said it was a purchase VMware for $ 61 billion, jumping into the market for server virtualization. The deal took 18 months to close, and it's only a way at Microsoft $68.7 billion received Action Blizzard and $67 billion at Dell Buy EMC on the list of biggest tech deals of all time.

Broadcom “started as a semiconductor company and over the last six years, we moved into infrastructure software, and that's gone well,” Tan told CNBC's Jim Cramer in an interview in September. “The recent acquisition of VMware was essentially another step toward creating a very balanced mix between” enterprise-focused chips and infrastructure software, he said.

Broadcom reported a better-than-expected profit in its latest quarterly earnings report on Thursday, even as revenue came in just shy of estimates. Broadcom's artificial intelligence business has taken overall growth to levels usually reserved for a company a fraction of its size.

In the fiscal fourth quarterAI revenue increased 150% to $3.7 billion, with some of that growth coming from ethernet networking components used to connect thousands of AI chips together.

That led to a total increase in revenue of 51% to $14.05 billion. Broadcom's infrastructure software division generated $5.82 billion in revenue for the quarter, nearly triple from last year's $1.97 billion, a number that included a big boost from VMware.

Within the rise of AI, Broadcom has not kept up Nvidiawhose graphics processing units are used to power the training and running of the most powerful AI models. Nvidia's market cap has risen more than 170% this year to $3.3 trillion, behind only Apple and Microsoft among the world's most valuable public companies. Broadcom has doubled in value this year.

While trailing Nvidia, Broadcom is still positioning itself for big growth at a former chip titan Intel reducing and restructuring. It is also much higher than that Advanced Micro Deviceswhich is worth $206 billion after falling 14% this year.

Broadcom refers to its custom AI accelerators as XPUs, which are different from the GPUs that Nvidia sells. Broadcom said it doubled shipments of XPUs to “our three hyperscale customers.” The company is not naming the customers, but analysts say the three Meta, Alphabet and TikTok parent ByteDance.

“The outlook for AI looks very bright for both GPUs and XPUs,” analysts at Cantor wrote in a note following this week's earnings report. The company recommends buying Broadcom shares and raised its 12-month target to $250 from $225. The stock closed Friday at $224.80.

The company that exists today as Broadcom is the result of a Union 2015 from Avago, which was spun off from Agilent Technologies in 2005, and Broadcom, which was started in Southern California in 1991. While Avago was a construction group, the combined company took the name 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 largest business was semiconductors for set-top boxes and broadband access.

The company's market cap reached $100 billion in 2018, at which time wireless infrastructure was still the main source of revenue. Broadcom changed its financial statement at the end of 2019 to focus on semiconductor solutions and infrastructure software, with the former accounting for about 73% of revenue in 2020.

But with the addition of VMware, infrastructure software has jumped from 21% of revenue in the October quarter last year to 41% in the period ended. Even without 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 in the current quarter to $6.5 billion while semiconductor revenue to rise 10% to $8.1 billion. AI revenue will jump 65% year over year to $3.8 billion, the company said.

Broadcom's market opportunity continues to grow due to the computing demands for large language models being created and used by the largest tech companies, Tan told Cramer in September.

“Each new generation LLM requires multiple x – 2-3x, maybe more – of computing, every hour, every year,” said Tan. “You can imagine that's a driver towards more and more computing opportunity larger, which is to be largely absorbed by XPUs”

alphabet, AmazonMeta and Microsoft spent a combined $58.9 billion on capital expenditures last quarter, according to a tech research firm Futurium. That represented a growth of 63% and equal to approximately 18% of total revenue.

Broadcom's differentiator in the market is that it makes very expensive custom chips for AI for the world's leading tech companies with the promise of helping them move 20% to 30% faster and ' use 25% less power, Piper Sandler analyst Harsh Kumar told CNBC's “Squawk on the Street” on Friday.

“You have to be a Google, you have to be a Meta, you have to be a Microsoft or a user Oracle to be able to use these chips,” Kumar said. “These chips are not for everyone.”

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