The list of the world's most prominent companies has undergone a paradigm shift over the past couple of decades, one that has accelerated since early last year. Case in point: In 2004, General Electric and ExxonMobil were the largest companies in the world by market cap, valued at $319 billion and $283 billion, respectively.
Now, just 20 years later, technology is king of the hill. Earlier this year, Microsoft became the world's most valuable company, boasting a market cap of $3.2 trillion, dethroning Apple, currently worth $2.9 trillion. Nvidia's market cap has surged to $2.3 trillion, pushing it past Alphabet, Amazon, and Meta Platforms, which sport market caps of between $1.2 trillion and $2.2 trillion.
Eagle-eyed investors will have spotted the common theme that sets these tech titans apart -- they're all leaders in the field of artificial intelligence (AI).
With a market cap of roughly $650 billion (as of this writing), it's evident that Broadcom (AVGO 3.34%) is working to join this elite group of companies. Given its place in the semiconductor ecosystem and the surging demand for all things AI, the company could join the list sooner than you might think.
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A chip off the old block
Broadcom is one of the world's largest custom chipmakers, but beyond semiconductors, it also makes a vast portfolio of products that underpin data centers, cloud computing, cybersecurity, and AI. Its products handle networking, server storage, infrastructure, broadband, wireless, and more. The company offers a host of network switching, routing, optical interconnect, and ethernet solutions, among others, many of which will benefit from the rapid adoption of generative AI.
Furthermore, Broadcom has struggled with headwinds born of the cyclicality inherent in some of its businesses, with wireless communications as a prime example. The company could get a boost as those segments recover.
Broadcom's business is picking up. In the first quarter, revenue climbed 34% to $12.9 billion, while its adjusted earnings per share (EPS) of $10.99 edged 6% higher, though its recent acquisition of VMWare weighed on the bottom line. Management is guiding for full-year revenue to grow by 40% to $50 billion.
The path to $1 trillion
Broadcom is in an enviable position in the AI revolution. The company has a vast portfolio of semiconductor solutions, many of which are essential components used for the AI and hyperscale data centers where most AI lives.
According to Wall Street, Broadcom is poised to generate revenue of $50.39 billion in 2024, giving it a forward price-to-sales (P/S) ratio of roughly 12.9. Assuming its P/S ratio remains constant, Broadcom would have to grow its revenue to roughly $77 billion annually to support a $1 trillion market cap.
Analysts are currently forecasting revenue growth of 40% in 2024 and 14% in 2025. If the company achieves those benchmarks and maintains a 14% growth rate in the years that follow, it could achieve a $1 trillion market cap as soon as 2028. However, given that the AI revolution is still young, those analyst estimates might end up being conservative -- in which case, it could reach that milestone sooner.
This could be just the beginning. Management noted that Broadcom's software revenue surged by 156% in the first quarter while its AI semiconductor revenue quadrupled. Management expects the company's AI-related revenue to grow to $10 billion-plus in 2024, which would represent at least 20% of its total revenue by year's end.
That isn't much of a stretch considering the large and growing estimates for the AI market. Generative AI is expected to generate revenue of between $2.6 trillion and $4.4 trillion annually over the coming decade, according to global management consulting firm McKinsey & Company. Furthermore, if the impact of embedded software is included, those figures roughly double.
Finally, trading at roughly 29 times forward earnings, Broadcom is fetching a slight premium compared to the S&P 500's multiple of 28. However, given its robust growth and position in the AI revolution, Broadcom investors are getting a lot of potential for their money.
