During Broadcom's recent earnings call, CEO Hock Tan shared an optimistic outlook for the company’s future, particularly in the AI chip market, predicting significant growth by 2027.

AI Market Growth Predicted to Surge

Tan forecasted that Broadcom's serviceable addressable market (SAM) for AI-related products and networks will range between $60 billion and $90 billion by 2027. This growth is largely driven by increasing demand for AI accelerators, or XPUs, with Broadcom already working with three major hyperscale customers. These companies are in advanced discussions to purchase millions of Broadcom’s AI accelerators to support their expanding AI workloads.

mage Note: Image generated by AI, provided by Midjourney

Tan highlighted that this growth will not happen overnight. Instead, it is expected to unfold over several years. By 2027, these three major customers are expected to deploy one million XPU clusters within the same architecture. This optimistic forecast caused Broadcom’s stock to surge by 24%, marking a milestone with the company’s market value surpassing $1 trillion for the first time.

Strong Performance in Traditional Products and VMware Acquisition

In addition to AI growth, Tan also provided insight into the company’s overall performance. Broadcom’s revenue from traditional products increased by 11% year-over-year. The company's financial results were further bolstered by its $69 billion acquisition of VMware in 2023, which contributed $3.85 billion to Broadcom’s revenue in the most recent quarter, leading to an overall revenue increase of 51%.

Since the acquisition, Broadcom has successfully cut VMware's operating costs in half, reducing expenses from $2.4 billion per quarter to $1.2 billion, while increasing its profit margin from 30% to 70%.

Tan also revealed that VMware’s expansion continues, with the company having installed 21 million CPU cores in the most recent quarter, up from 19 million cores in the previous quarter. Among VMware’s top 10,000 customers, 4,500 have already migrated their virtualization environments to Broadcom’s VMware cloud infrastructure.

Potential Challenges Ahead for VMware

Despite the strong performance, Broadcom faces some challenges. A forecast from market research firm Forrester predicts that VMware customers may reduce their deployments by 40% in the coming year, primarily due to a growing trend of customers migrating to public clouds, on-premises alternatives, and new architectures. This shift may impact VMware’s future growth prospects.

During the call, Broadcom’s CFO, Kirsten Spears, stated that the company will no longer disclose virtualization business revenue separately. Instead, VMware's revenue will be merged with the company’s revenue from mainframe and other traditional software businesses.

Key Points

1. Broadcom predicts the AI market to reach a serviceable addressable market of $60 billion to $90 billion by 2027.
2. The company’s market value surpassed $1 trillion for the first time, driven by strong AI chip demand.
3. Broadcom's VMware acquisition significantly boosted overall revenue by 51%, while reducing operating costs and increasing profit margins.