Earnings Report Preview | "AI Shovel Seller" Broadcom's Earnings Report is Coming! Expected to Relay NVIDIA to Ignite the AI Craze.

Zhitong App has learned that Broadcom, one of the biggest winners in the global AI boom, will announce its performance for the first quarter of the 2024 fiscal year after the US stock market closes on March 7. Over the years, the company has continuously expanded its product portfolio from semiconductors to enterprise software solutions and other software services. Recently, this strategy was complemented by the acquisition of VMware. Market expectations are high, with Wall Street analysts expecting Broadcom's Q1 total revenue to reach $11.73 billion as of the end of January, compared to $8.92 billion in the same period last year and $9.3 billion in the previous quarter. The expected Q1 NON-GAAP earnings per share are $10.40, compared to $10.33 in the same period last year.

With NVIDIA, the world's highest market value chip company, recently releasing an unparalleled performance report, global investors have been informed that NVIDIA will lead the global AI revolution. The investment frenzy surrounding artificial intelligence in the global stock market is something no investor can afford to miss. Wall Street traders have chosen to follow suit with real money, seemingly unwilling to resist this wave of artificial intelligence investment, helping NVIDIA achieve an astonishing 66% increase in value so far this year. As Broadcom, another major player in the AI field and the ninth-largest company in the US stock market, known for its AI underlying hardware Ethernet switch chips, prepares to release its earnings report, tech stock investors are eagerly anticipating Broadcom's report to continue fueling this AI frenzy.

Broadcom's Ethernet switch chips are mainly used in data centers and server cluster equipment, responsible for efficiently and rapidly processing and transmitting data streams. Broadcom chips are essential for building AI hardware infrastructure because they ensure high-speed data transfer between GPU processors, storage systems, and networks. This is crucial for generative AI applications like ChatGPT, especially those requiring large amounts of data input and real-time processing capabilities, such as Dall-E text-to-image and Sora video generation models.

This time last year, NVIDIA shocked global investors with its performance, signaling the start of a global tech frenzy around generative AI technology, which in turn drove the S&P 500 index to a violent 25% rebound in 2023. The "tech stock barometer" Nasdaq 100 index surged by 55%. This year, NVIDIA's explosive performance indicates that NVIDIA will lead the global AI revolution, with the trend of large-scale data centers transitioning to GPU acceleration systems and the "big bang" of innovative AI applications like Sora just beginning. A new round of "bull market" in the US stock market is on the horizon. Broadcom, one of the biggest beneficiaries of the AI trend, has seen a remarkable surge in its stock price, rising by 25% since the beginning of 2024. With a total market value of $640 billion, it currently ranks ninth in the US stock market. Investors continue to bet on this chip giant as one of the prime beneficiaries of the global AI trend.

The surge in Broadcom's stock price can be attributed to its outstanding performance in the surge of demand for AI-driven chips. Particularly, its crucial underlying hardware provided for the global deployment of AI has strengthened its market position and boosted its stock price.

Broadcom is a leader in RF chips for smartphones and in the wired and wireless communication sectors. In terms of AI underlying hardware, the demand for Broadcom's Ethernet switch chips and ASIC chips based on Broadcom's data transmission technology is exceptionally strong. Rumors have it that tech giants like Google and Microsoft often specifically request Broadcom products. The robust demand for Ethernet switch chips is evident in Broadcom's 2023 fiscal year revenue, which consistently exceeded expectations. Broadcom launched the Jericho3-AI Ethernet switch chip in April 2023, specifically designed for AI network structures to significantly reduce the time required for AI training in network structures. This chip's ultra-high radix uniquely allows the Jericho3-AI structure to expand connections to 32,000 GPUs in a single cluster, with each GPU having 800Gbps. Broadcom stated that the Ethernet switch structure based on Jericho3-AI is designed to help enterprises manage the ever-expanding workload of massive network systems driven by AI demands. Jericho3-AI is designed to meet the special requirements of technology companies for AI and machine learning workloads by providing optimized load balancing, low latency, high throughput, and other features to support the construction of high-performance AI computing platforms.

In November 2023, Broadcom made a significant move by introducing the industry's first "NetGNT" neural network inference engine, marking its advanced progress in providing innovative solutions for data centers dominated by AI/machine learning (ML). The Ethernet switch software built on "NetGNT" with the Trident 5-X12 chip, introduced by the company, is programmable and instantly upgradable. It not only offers a bandwidth of 16.0 Terabits/second and supports 800G ports but also enables direct connections to the latest Tomahawk 5, a leading technology used as the backbone/structure in the latest computing and AI/ML data centers. The design of Trident 5-X12 aims to support next-generation CPU and GPU-accelerated servers while providing higher network transmission efficiency and performance.

The Trident series chips are a high-performance Ethernet switch chip series designed by Broadcom for data center networks, aiming to provide high-density, high-performance network solutions to support the high-speed data transmission requirements of modern data centers. The Trident series chips are particularly suitable for high-speed data environments such as high-performance computing, cloud computing, and large-scale data centers, capable of handling large volumes of high-speed data traffic while maintaining low latency and high efficiency.

The Trident series chips are renowned for their high performance, high density, and energy-saving features, making them a key technology for building modern large-scale data center network infrastructure. As a member of the series, Trident 5-X12 continues this tradition by providing advanced network bandwidth, low-power operation, high scalability to meet the needs of next-generation data center networks, including support for AI and machine learning workloads. The high performance and port density of Trident 5-X12 make it ideal for high-speed network requirements within modern data centers. In addition, Broadcom plays a crucial role in the design and manufacturing of AI ASIC (AI Application-Specific Integrated Circuit) chips. AI ASIC chips require high-performance communication and data transmission chips to support high-speed data processing and delivery. Broadcom's network chip technology provides support in this area, such as helping Google's various TPU chips achieve efficient data processing capabilities. Broadcom supplies key semiconductor components to cloud computing giants like Google, including network interface cards (NICs) and switch chips, which are essential for building high-speed and efficient data centers.

According to the renowned research firm IDC, global spending on artificial intelligence (AI) is expected to reach around $154 billion by 2023, covering software, hardware, and other services centered around AI systems. This represents a 26.9% increase from the total spending in 2022. IDC forecasts a compound annual growth rate (CAGR) of 27.0% from 2022 to 2026, with total spending on AI core systems (including software, hardware, and other services) expected to exceed $300 billion by 2026.

Furthermore, Broadcom is a long-term partner of Apple, providing key chip components for almost the entire iPhone series. These components typically include wireless communication chips (such as Wi-Fi and Bluetooth chips) and RF front-end chips, which are crucial for ensuring the network connectivity and communication capabilities of Apple devices.

In terms of the overall smartphone market outlook, Canalys predicts that the global smartphone market will achieve moderate growth under cautious circumstances by 2024. Canalys forecasts a 4% increase in smartphone shipments in 2024, reaching 1.17 billion units. By 2027, this is expected to reach 1.25 billion units, with a compound annual growth rate of 2.6% from 2023 to 2027.

With its Ethernet switch chip and cloud services in hand, Broadcom is poised to continue its efforts on both the software and hardware fronts. Following Broadcom's growth into a diversified technology company after acquiring VMware, and with the ongoing trend of global enterprise AI deployment, Wall Street analysts generally believe that the company seems capable of benefiting from the surge in demand for AI underlying hardware and high demand for enterprise software solutions. Recently, the well-known Wall Street investment firm Susquehanna significantly raised Broadcom's target price from $1400 to $1550 (as of last Friday's closing price of $1399.17). Susquehanna expects investors' attention to focus on the company's progress in the AI network chip and TPU chip fields, as well as the ongoing integration with VMWare, which is expected to generate pricing and synergistic benefits.

Analysts anticipate that in the coming years, the rapid growth of the generative artificial intelligence market will accelerate the sales of the company's Ethernet switch chips. At the same time, the long-term growth trends in network security and cloud services markets will enhance the growth prospects of its infrastructure business, particularly VMware.

Analysts project that VMware is poised to become a core business for Broadcom, as Broadcom aims to create private and hybrid cloud environments for global enterprises and divest non-core assets. In terms of cloud services, VMware primarily offers virtualization and software-defined data center solutions, with its flagship product being VMware vSphere for building and managing virtualized infrastructures.

Taking into account the post-restructuring integration of VMware and its outlook for our fiscal year 2024, analysts generally expect Broadcom's total revenue for the fiscal year 2024 to reach around $50 billion. Broadcom CEO Hock Tan recently interacted with analysts, stating, "We anticipate the integration will take about a year and will require nearly $1 billion in transition expenses, which will mainly be completed by the end of our fiscal year 2024."

Several months ago, Broadcom completed the acquisition of virtualization and cloud services technology provider VMware for $69 billion. While full integration is still ongoing, this chip giant has already begun taking steps to streamline its operations. As part of this, the chip company recently revealed plans to sell VMware's endpoint computing division, Carbon Black.