As the artificial intelligence (AI) boom expands, it is taking the semiconductor industry along with it. Semiconductor chips are to most tech products what engines are to cars. This central role helps explain why semiconductor companies like Broadcom (AVGO 0.63%) are seeing a much-appreciated boost to their top-line revenue, bottom-line earnings, and stock prices.
Over the past 12 months (ended Nov. 18), Broadcom's stock is up about 107%, meaning a $1,000 investment made a year ago would be worth $2,066 today. For comparison, the S&P 500 -- in which Broadcom is the seventh-largest holding -- is only up around 12.7% in that time.
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The main reason semiconductor companies have flourished during the AI boom is that AI modeling and operations require huge amounts of complex computing, which relies on advanced chips that semiconductor companies design and/or manufacture. Broadcom is positioned as a key player because it provides critical connectivity products and custom-built semiconductors needed for both large-scale AI training and real-time AI applications. For example, it is collaborating with OpenAI to develop custom AI chips and networks, and providing chips that enable on-device AI features like real-time translation.
In this third quarter, Broadcom's revenue came in at around $15.9 billion, up 22% year over year. AI-related revenue increased by 63% to $5.2 billion. That growth is expected to continue going forward, with Broadcom forecasting fourth-quarter AI-related revenue to come in around $6.2 billion.
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Key Data Points
As AI infrastructure buildouts continue, Broadcom should keep benefiting from the growing demand for its AI accelerators, networking equipment, and cloud computing solutions.
