Broadcom envisions a $90 billion custom AI chip market, causing cheers as Wall Street's highest target rises to $250

Zhitong
2024.12.13 13:38
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Broadcom's fourth-quarter performance exceeded expectations, with the custom AI chip market projected to reach $90 billion by 2027, surprising Wall Street. Analyst Blayne Curtis reiterated a "Buy" rating, raising the target price to $225. Morgan Stanley's Joseph Moore also raised the target price to $233, believing that Broadcom's prospects will attract long-term investors. CEO Hock Tan stated that market demand may come from clients such as Google and Meta, and if they win business from Microsoft and Amazon, the market size will further expand

According to the Zhitong Finance APP, Broadcom (AVGO.US) reported fourth-quarter results that exceeded expectations, but its guidance indicating that the custom artificial intelligence chip market could reach $90 billion by 2027 seemed to surprise Wall Street even more.

Jefferies analyst Blayne Curtis wrote in a report to investors, "Management revealed that customers plan to deploy 1 million XPU clusters, but the confidence from this conference call seems even higher. While we may not see more trends in artificial intelligence development until the second half of next year, we believe the market will rekindle interest in Broadcom."

Curtis reiterated his "Buy" rating and raised his target price from $205 to $225.

During the conference call, Broadcom CEO Hock Tan stated that the market demand for custom AI chips is expected to be between $60 billion and $90 billion by 2027.

Curtis added that this $60 billion to $90 billion comes from the company's three AI-specific integrated circuit customers, including Google (GOOGL.US) and Meta (META.US), but this figure could rise further if the company wins business from two other major companies, Microsoft (MSFT.US) and Amazon (AMZN.US).

Morgan Stanley analyst Joseph Moore also raised his target price.

Moore wrote in a report, "Compared to concerns about Google's transformation, Broadcom's in-line quarterly performance and outlook may be a relief, and long-term comments on artificial intelligence will boost long-term enthusiasm. We expect momentum to start building from here through 2025." Moore reiterated his "Overweight" rating and raised his target price from $180 to $233.

Evercore ISI analyst Mark Lipacis also expressed excitement about this guidance, stating that investors may "underestimate" the opportunities for Broadcom's custom artificial intelligence chips.

In addition to the $90 billion figure, Tan mentioned that AI-generated synthetic data is likely to be a "multiplier" of human-generated data, ultimately feeding into large language models, indicating that the tech industry is not even close to the limits of large language models.

Lipacis added, "We agree with Hock's perspective on this issue." He reiterated his "Outperform" rating and raised his target price from $201 to $250

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