Broadcom soars as demand for AI chips powers forecast raise

The Broadcom Limited company logo is shown outside one of their office complexes in Irvine, California, U.S., March 4, 2021. REUTERS/Mike Blake/File Photo

(Reuters) - Broadcom surged about 15% on Thursday as its upbeat annual forecast highlighted insatiable demand for chips used in powering AI-focused technology, while its announcement of a stock split added to the euphoria.

The rising adoption of generative AI has been driving demand for companies such as Broadcom that provide chips and networking tools to support these intensive applications.

Broadcom, whose shares have risen 76% in the past 12 months and closed at $1495.5 on Wednesday, joined Nvidia in trying to make its stock more affordable through a 10-for-1 split.

"It's a sure-fire way to send your stock soaring," Triple D Trading analyst Dennis Dick said, adding the move was "right out of Nvidia's book".

If the gains hold, Broadcom will add about $100 billion to its market value. More than 12 brokerages raised their price target on the stock.

Broadcom now trades at about 28 times expected earnings, compared with a price-to-earnings ratio of about 40 for Nvidia and rival Marvell Technology.

The company on Wednesday raised its forecast for annual revenue from AI-linked chips to $11 billion from $10 billion and raised its annual revenue and core profit projections.

Broadcom said it will make the next generation of custom AI chips for "hyperscaler" clients, which are widely considered to be Alphabet's Google and Meta Platforms. The company said in March it added a third custom AI chip customer.

"We continue to see Broadcom as incredibly well-positioned to benefit from rising generative AI investment in the long term," Morningstar analysts said.

Broadcom's software division benefited from its buyout of VMware, which added $2.7 billion to its second-quarter revenue.

"After this stunning earnings report and a 10-for-1 stock split announcement. If you don't hold Broadcom, you have a hole in your portfolio," said Paul Marino, chief revenue officer of GraniteShares, which holds Broadcom stock through its ETFs.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Anil D'Silva and Mohammed Safi Shamsi)

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