Broadcom Chips Power AI, Apple Deals

Broadcom's stock, currently up approximately 15% year-to-date despite recent declines from its peak, has received a significant boost from Apple's commitment to spend over $30 billion on Broadcom-based chips and wireless connectivity technologies in the coming years. This substantial deal will also involve a $1.5 billion expansion of Broadcom's Fort Collins, Colorado facility, which produces advanced radio frequency components.

While Broadcom's non-AI business anticipates a cyclical recovery, its AI division represents a massive growth opportunity. The company's ASIC business, which customizes AI chips for clients, is a key driver. Having assisted Alphabet with its Tensor Processing Units, Broadcom is now enabling other hyperscalers to develop their own custom AI chips. This segment is expected to drive custom chip revenue beyond $100 billion in fiscal 2027, a substantial increase from fiscal 2025's $64 billion total revenue and $20 billion in AI revenue. Citigroup analysts project AI revenue could reach $180 billion by 2028.

Following a sell-off in the AI chip sector, Broadcom's stock is trading at a forward P/E of just over 20.5 times fiscal 2027 estimates, representing a compelling valuation for a company poised for such significant future growth.