Under the strong demand driven by AI, Broadcom Inc. (AVGO.US) exceeded profit expectations in Q4, with huge opportunities expected in the next three years.

After the US stock market closed on Thursday, Broadcom Inc. (AVGO.US) announced its fourth quarter earnings for fiscal year 2024. Due to better-than-expected fourth quarter profits and forecasts of a surge in demand for its artificial intelligence chips, as of the time of writing, Broadcom Inc. saw a nearly 16% increase in its stock price after hours on Thursday. The financial report shows that Broadcom Inc.'s Q4 revenue was $14.054 billion, a 51% increase from the previous year, slightly lower than the market's expectation of $14.08 billion. By segment, the semiconductor solutions department revenue was $8.23 billion, a 12% increase year-on-year; infrastructure software department revenue was $5.824 billion, a 196% increase year-on-year. Under Non-GAAP accounting standards, net profits were $6.995 billion, a 45% increase year-on-year; adjusted earnings per share were $1.42, better than the market's expectation of $1.38. Looking ahead, Broadcom Inc. forecasts revenue of $14.6 billion for the first quarter of fiscal year 2025, a 22% increase from the previous year, which is in line with market expectations; they expect that EBITDA as a percentage of revenue in the first quarter will be 66%. During the financial report conference call, the company predicted that revenue from AI products would increase by 65% in the first quarter of fiscal year 2025, much faster than the overall semiconductor sales growth of around 10%. The company also forecasted that by fiscal year 2027, the potential market size for AI components designed for data center operators could reach $90 billion. CEO Hock Tan emphasized during the call, "The opportunity for AI chips in the next three years is significant." Like NVIDIA Corporation, Broadcom Inc. is also a major beneficiary of the AI spending boom, which has prompted investors to buy shares in Broadcom Inc. In the recently ended fiscal year 2024, Broadcom Inc.'s AI revenue increased by 220% to $12.2 billion, surpassing the market's expectation of over $10 billion, mainly due to its leading AI XPU and Ethernet networking product portfolio. Data center operators rely on Broadcom Inc.'s custom chips and networking chips to build their AI systems. The company also sells components for cars, smartphones, and internet access devices. Additionally, the company is expanding into the software field, including large computers, network security, and data center optimization products. Some analysts believe that as companies double their investments in generative AI infrastructure, the demand for Broadcom Inc.'s networking chips is also increasing, as these chips help transmit large amounts of data used in AI applications like ChatGPT. Despite facing fierce competition from NVIDIA Corporation's Ethernet-based Infiniband products, Broadcom Inc. is still benefiting from the expansion of AI data centers as one of the largest providers of advanced networking equipment. Hock Tan stated that his company has won two new mega-scale customers - the largest data center operators. Through a series of acquisitions, Hock Tan has built one of the most valuable companies in the chip industry. The company's influence in the industry also makes it a barometer of demand for the entire tech industry. It is worth mentioning that there are reports that Apple Inc. (AAPL.US) will start using its own wireless chips in new products set to be released in 2025, including switching from Broadcom Inc.'s supplied chips for iPhones and home wireless devices to their own products. In response to this, Hock Tan stated during the financial report call that the company has had a longstanding partnership with Apple Inc. for several years. Hock Tan also mentioned that Broadcom Inc. remains open to acquisitions, as it has been a core part of their company's strategy and business model for the past decade.