Financial Report Preview | "AI Sells Shovels" Broadcom (AVGO.US) financial report is coming! Expected to continue the AI boom ignited by NVIDIA.

One of the biggest winners in the global AI craze, Broadcom (AVGO.US), will announce its performance for the first quarter of its fiscal year 2024 after the US stock market closes on March 7th, Eastern Time. Over the years, the company has continuously expanded its product portfolio from semiconductors to enterprise software solutions and other software services. Recently, this strategic expansion was complemented by the acquisition of VMware. In terms of market expectations, Wall Street analysts expect Broadcom's total revenue for Q1 up to the end of January to reach as high as $11.73 billion, compared to $8.92 billion in the same period last year and $9.3 billion in the previous quarter. The expected earnings per share under the NON-GAAP guidelines for Q1 are $10.40, compared to $10.33 in the same period last year. Following Nvidia (NVDA.US), the world's highest market value chip company, who recently released an unparalleled performance report, telling global investors that Nvidia will lead the global AI revolution, the global stock market frenzy around investments in artificial intelligence is something no investor can afford to miss. Wall Street traders are choosing to follow with real money, seemingly hesitant to resist this wave of artificial intelligence investment, which has helped Nvidia achieve an astonishing 66% increase in value. As the 9th largest company by market value in the US stock market, Broadcom, another "spade seller" in the AI field focusing on underlying hardware such as Ethernet switch chips, is expected to continue to fuel this AI frenzy with its upcoming financial report. Broadcom's Ethernet switch chips are mainly used in data centers and server cluster equipment, responsible for efficiently and quickly processing and transmitting data. Broadcom's chips are essential for building AI hardware infrastructure because they ensure high-speed data transfer between GPU processors, storage systems, and networks, which is crucial for AI applications like ChatGPT that require processing large amounts of data inputs and real-time processing capabilities, such as Dall-E text-to-image and Sora video models. Last year at this time, Nvidia's groundbreaking performance report told global investors that the global technology industry had embarked on a full-scale layout of generative AI technology, which in turn led to a violent rebound of 25% in the S&P 500 index in 2023, while the "tech stock indicator" Nasdaq 100 index surged by 55%. This year, Nvidia's explosive performance is telling global investors that Nvidia will lead the global AI revolution, the trend of large-scale data centers transitioning to GPU acceleration systems, and the "big breakthrough wave" of innovative AI applications like Sora are just beginning, with a new round of "bullish rally" in the US stock market gathering momentum. Under the catalytic effect of Nvidia, the leader in AI chip technology, which released an extraordinarily strong performance and outlook at the end of February, the stock prices of US technology giants have rapidly risen in the past two weeks. Broadcom, benefiting from the global technology industry's layout of the AI craze, has also performed exceptionally well in this wave of gains. Nvidia's stock price rose by 29% in February, driving the Nasdaq 100 index, which is dominated by tech stocks, up by 5%, repeatedly hitting new highs. Broadcom's stock price increased by over 10% in February and has risen by more than 25% since the beginning of 2024, currently ranking ninth in the US stock market by market capitalization. Recently, the board of this chip giant raised its dividend by 14% to $5.25 per share, solidifying shareholders' confidence to continue holding and continuously attracting new investors. Analysts generally believe that Broadcom's dividend increase is mainly to reflect the expected growth in cash flow related to the VMware acquisition and to stabilize shareholder confidence by raising dividends, showing that shareholders believe the VMware acquisition will not bring additional cash pressure to Broadcom. Since more than a decade ago when the company started paying dividends, dividends have increased at least once every year. Broadcom - One of the biggest beneficiaries of the AI trend After a 105% surge in stock price in 2023, Broadcom's stock price has soared by 25% so far in 2024, reaching a total market value of $640 billion and ranking ninth in market capitalization of US stocks. Investors continue to bet that this chip giant will be one of the best beneficiaries of the global enterprise layout of the AI trend. The reason for Broadcom's surge in stock price is mainly attributed to its outstanding performance in the explosive wave of demand for AI-driven chips. Specifically, Broadcom's critical underlying hardware provided in the global enterprise deployment of the AI trend has strengthened its market position and driven up its stock price. Broadcom is a leader in RF chips for smartphones and wired and wireless communication. 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 incredibly strong. Rumors have it that tech companies like Google (GOOGL.US) and Microsoft (MSFT.US) often specifically ask for Broadcom products, and the strong demand for Ethernet switch chips can be clearly seen in Broadcom's strong revenue data that continued to exceed expectations in the 2023 fiscal year. In April 2023, Broadcom launched the Jericho3-AI Ethernet switch chip, designed specifically for AI network architectures with the aim of significantly reducing AI training time in network structures. The chip's ultra-high radix uniquely allows the Jericho3-AI architecture 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 handle the ever-expanding workload of huge network systems created by AI needs. Jericho3-AI is designed to meet the special requirements of tech enterprises for AI and machine learning workloads, providing optimized load balancing, low latency, and high throughput to support the construction of a high-performance AI computing platform. In November 2023, Broadcom made a major breakthrough by introducing the industry's first advanced neural network inference engine called "NetGNT," marking its advanced strides in providing innovative solutions for data centers dominated by AI/machine learning (ML). The "NetGNT"-based Trident 5-X12 chip, developed by the company, is built to empower AI and machine learning workloads in data centers.The Ethernet switch software is programmable and can be instantly upgraded, providing not only a bandwidth of 16.0 Terabits/second but also supporting 800G ports, allowing it to directly connect to the latest Tomahawk 5, which is a leading technology used as the backbone/structure in the latest computing and AI/ML data centers. The design of Trident 5-X12 is aimed at supporting next-generation CPU and GPU accelerated servers while providing higher network transfer efficiency and performance.The Trident series of chips from Broadcom are high-performance Ethernet switch chips designed 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 of 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 amounts of high-speed data traffic while maintaining low latency and high efficiency. The Trident series of chips are known for their high performance, high density, and energy efficiency, and are one of the key technologies for building the network infrastructure of modern large data centers. As a member of the series, the Trident 5-X12 continues this tradition, offering advanced network bandwidth, low-power operation, and high scalability to support the next generation of data center network requirements, including support for AI and machine learning workloads. The high performance and high port density of the Trident 5-X12 make it highly suitable for high-speed network requirements within modern data centers. In addition, Broadcom plays an important role in the design and manufacturing of AI ASIC (AI application-specific integrated circuit) chips, which require high-performance communication and data transfer 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 provides key semiconductor components for cloud computing giants like Google, such as 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 AI spending - covering software, hardware, and other services for AI-centered systems - is expected to reach approximately $154 billion by 2023, with a 26.9% increase from total spending in 2022; IDC predicts a compound annual growth rate (CAGR) of 27.0% from 2022 to 2026, with total spending on AI-centered systems expected to exceed $300 billion in 2026. Furthermore, Broadcom is one of Apple's long-term partners, providing key chip components for almost the entire iPhone series under Apple. These components typically include wireless communication chips (such as Wi-Fi and Bluetooth chips) and RF front-end chips, which are crucial for ensuring network connectivity and communication capabilities for Apple devices. In terms of the overall smartphone market expectations, Canalys predicts that the global smartphone market will achieve moderate growth under a cautious trend in 2024. Canalys forecasts that smartphone shipments in 2024 will increase by 4% to reach 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 both the Ethernet switch chip and cloud services in hand, Broadcom is poised to continue strengthening its efforts on both hardware and software fronts As Broadcom continues to grow into a diversified technology company after acquiring VMware, and the trend of global enterprises deploying AI continues to rise, Wall Street analysts generally believe that the company seems capable of benefiting from the surge in demand for underlying hardware requirements for AI and high demand for enterprise software solutions. The well-known Wall Street investment firm Susquehanna recently raised Broadcom's target price from $1400 to $1550 (as of last Friday's closing price of $1399.17). Susquehanna expects investors to focus on the company's advancements in AI network chips and TPU chips, as well as the integration with VMware currently in progress, which is expected to generate pricing and synergistic benefits. Analysts anticipate that the rapid growth of the generative AI market in the coming years will accelerate the sales scale of Broadcom's Ethernet switch chips. At the same time, the long-term growth trends in network security and cloud services markets will also increase the growth prospects of its infrastructure business involving VMware. Analysts expect VMware to become a core business for Broadcom, where Broadcom will create private and hybrid cloud environments for large global enterprises, and divest non-core assets. In terms of cloud services, VMware's cloud services mainly focus on virtualization and software-defined data center solutions, with its main product being VMware vSphere for building and managing virtualized infrastructures. Considering the integration of VMware in the future for our 2024 fiscal year outlook, analysts generally expect Broadcom's combined revenue for fiscal year 2024 to reach approximately $50 billion. Broadcom CEO Hock Tan recently interacted with analysts, stating, "We expect the integration to take about a year and will require nearly $1 billion in transition expenses, which will mainly be completed by the end of our 2024 fiscal year." A few months ago, Broadcom completed the acquisition of virtualization and cloud service technology provider VMware for $69 billion. While full integration is still ongoing, this chip giant has begun taking steps to streamline its operations. As part of this, the chip company recently revealed plans to sell VMware's Carbon Black endpoint user computing division.