Spending on artificial intelligence (AI) infrastructure is soaring, and AI chip clusters are ballooning in size, reaching more than 1 million chips. One of the companies best positioned for this trend is Broadcom (AVGO +2.97%).
Broadcom benefits from the increasing size of AI clusters in two main ways. The first is that the company is a market leader in networking technology. The company has an entire portfolio of products -- including ethernet switches, digital signal processors (DSPs), SerDes (Serializer/Deserializer), and network interface cards (NICs) -- dedicated to optimizing data flow and distributing AI workloads across servers. As the size of AI chip clusters grows, so does the importance of networking equipment to avoid data flow bottlenecks.
Broadcom is at the forefront of networking technology, and it just recently introduced its Tomahawk 6 ethernet switch to specifically handle the demands of AI clusters with over 1 million XPU chips. The company grew its AI networking revenue by 60% last quarter, and this growth is only expected to accelerate as AI chip clusters grow in size.
Image source: Getty Images.
A leader in custom chips
At the same time, Broadcom is also benefiting from the increasing number of AI chips going into data centers and the gradual shift from graphics processing units (GPUs) to XPU AI accelerators. XPUs are essentially hardwired ASICs (application-specific integrated circuits) designed to handle specific workloads like AI model training or inference. Given the high costs of Nvidia's GPUs, hyperscalers (owners of large data centers) have been increasingly turning to XPUs to help handle some of their AI workloads, especially for inference, which is an ongoing cost.
NASDAQ: AVGO
Key Data Points
Broadcom is a leader in ASIC technology, providing the building blocks to help turn its customers' designs into physical chips that can be manufactured at scale. The company cemented its reputation in this area by helping Alphabet develop its hugely successful tensor processing units (TPUs). The company is seeing huge growth from TPUs alone, as Alphabet has cranked up its AI data center spending, while it's also let large customers order chips directly from Broadcom, including Anthropic, which has placed a $21 billion order. Meanwhile, other hyperscalers, including OpenAI and Meta Platforms, are also working with Broadcom to develop their own AI XPUs.
Broadcom has projected that in fiscal 2027, it will generate over $100 billion in XPU revenue alone. That's a huge number, as it is more than 1.5 times the total revenue it produced in fiscal year 2025. Meanwhile, these custom AI customers are also going to need a lot of networking equipment to go along with these huge XPU data centers they are building, setting up Broadcom for explosive growth in the coming years. That's why it's the one stock you want to own to play this trend.
