Broadcom (NDQ:AVGO): Meet the US$1.75tn chip maker that’s displaced Tesla from the Magnificent Seven

Broadcom (NDQ:AVGO) is probably the most under appreciated of the (currently) 12 stocks that are capped at over US$1tn.

And it is one of only two in the semiconductor space, with the other being TSMC. Obviously, this company (headquartered at the Stanford Research Park in Silicon Valley) is one to know about. Especially as it has risen 900% in the last 5 years…something that did not happen by accident.

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Broadcom: It’s a long story

You may have noticed that Broadcom has an odd code – AVGO; odd in the sense that it is seemingly not related to the company at all. It is a legacy of a company called Avago Technologies that first went public in 2009 and acquired Broadcom for US$37bn.

Notwithstanding that Avago was the buyer, the new company would be named Broadcom. Broadcom itself was established as a chip division of HP, only separating in 1999.

This company is a combined hardware (i.e. chips) and software firm. It makes chips (specifically ethernet switches and interconnects) especially for data centres, as well as Custom AI accelerators and other technologies for large-scale AI training/inference in data centres. In particular, it makes XPUs, custom chips for major hyperscale clients for their AI workloads.

The software is diverse but is led cloud products which were a legacy from  VMWare which was bought in 2023 for over US$60bn. It was a costly deal and took many months to close, but this bought in a recurring revenue engine that can smooth out chip cycles which make many other chip makers riskier investments.

And many analysts say this was the catalyst for it overtaking Tesla. Some may say Tesla bought its stagnation on itself, but we’ll leave that to another article.

Big through both M&A and organic growth

It can be a red flag to many investors when a company is only growing through M&A. But Broadcom has done both, being strategically positioned in Cloud and AI infrastructure. It grew its revenue by 18% CAGR over the first half of the 2020s – from $22.6bn to $51.6bn. Its split is 58-42 hardware/software. We also note that Broadcom has been generous with dividends and buybacks, which draws investor interest.

But of course, it is AI that gets investors excited. And this is not a company with a mere idea or a small player – it is a US$50bn+ company. The company is also experiencing fast growth from AI revenues and there’s no end to the growth in sight.

As AI models get bigger and more costly to train and infer, hyperscalers (cloud providers, large tech firms) will invest in specialised chips and high-bandwidth networking. Broadcom is a beneficiary with the products that make this possible. Indeed, its customers include players like Google and Meta. Outside hyperscale AI, growth in 5G, upgraded WiFi, IoT, broadband infrastructure could support Broadcom’s legacy and adjacent hardware business.

Do investors need to ‘get real’?

Broadcom is well positioned in AI infrastructure compared to many peers, especially given its networking and custom hardware capabilities — so investor excitement that it has big AI exposure is justified.

But investors need to remember this. Broadcom is not purely an “AI company” in the way some pure-play AI chip or model companies are. Its growth will still depend on broader hardware demand and commercial execution. It has competitors including Nvidia and AMD that are in a cut-throat race. The ‘AI Race’ costs substantial money (i.e. capex).

And as Broadcom gets bigger and bigger, it becomes more and more exposed to geopolitical tensions and regulatory scrutiny. It has faced antitrust investigations and had M&A deals blocked over competition concerns. Even the first Trump administration blocked an attempt to buy Qualcomm over national security concerns.

Working with OpenAI

Of course, the competition can also be a benefit as it keeps the company on its toes, and some companies may have ‘a foot in both camps’ to protect themselves. OpenAI is a top client of Nvidia, but has been working with Broadcom to reduce reliance on Nvidia.

Indeed, the companies announced they would develop 10 gigawatts of custom AI accelerators with the racks targeted for the second half 0f 2026.

Sam Altman, OpenAI’s co-founder personally endorsed the deal.“Partnering with Broadcom is a critical step in building the infrastructure needed to unlock AI’s potential and deliver real benefits for people and businesses,” he declared.

“Developing our own accelerators adds to the broader ecosystem of partners all building the capacity required to push the frontier of AI to provide benefits to all humanity.”

The growth is happening, but expectations are high

We already mentioned that $51.6bn was made in 2024, but we haven’t mentioned it was up 44% in 12 months. Its net income/profit was US$6bn which was 56% lower than the year before and US$1.33 EPS.

Broadcomm uses a November-October financial year, and analysts expect a $20.1bn profit and $63.3bn revenue. For the following year, $85.2bn revenue and a $30.1bn profit. The mean target price amongst the >40 analysts covering the stock is US$392.38, a ~5% premium to the current price. The company is trading at multiples of 39.8x P/E and 1.34x PEG for the next financial year.

Conclusion

Broadcom is probably the closest thing we have now to Apple under Steve Jobs. Remember the era when he’d get up every year, proclaim ‘One more thing’ and change the world. Broadcom is not making headlines like Apple did in its day, but is unfurling technologies at a much more rapid rate.

In the last month alone, it has unfurled the industry’s first:

• 102.4-tbps (terrabytres per second) Ethernet switch with co-packaged optics,
• Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem including residential gateways, enterprise access points, and smart mobile clients; and
• 800G AI Etnernet NIC (Network Interface Card) which can interconnect hundreds of thousands of Broadcom’s XPUs to drive trillion-parameter AI workloads.

Exciting? It is. Investors do need to be aware that even though this company has a big opportunity and is safer than pure-play chip stocks; execution and commercial risks cannot be entirely ruled out.