More On Broadcom As AI Business Explodes

Broadcom At An Inflexion Point

What we are seeing in the US stock market currently is companies hitting inflexion points. The latest quarterly results from semiconductor giant Broadcom suggest it is at an inflexion point.

This has been a transformative year for Broadcom. Our fiscal year 2024 consolidated revenue grew 44pc year over year to a record $51.6bn.

Now, excluding VMware, our revenue grew over 9pc organically. So, fiscal ’24 operating profit, excluding transition costs grew 42pc year over year. And we returned a record $22bn in cash to our shareholders, up 45pc year on year through dividends, buybacks, and eliminations. There were two significant drivers of this transformation this year.

First, we closed the acquisition of VMware in the early weeks of fiscal ’24 and then focused VMware on its technology leadership in data center virtualisation. The integration of VMware is largely complete. Revenue is on a growth trajectory and operating margin reached 70pc exiting 2024. We are well on the path to delivering incremental adjusted EBITDA at a level that significantly exceeds the $8.5bn we communicated when we announced the deal.

We are planning to achieve this much earlier than our initial target of three years. The second driver in 2024 was AI. Our AI revenue, which came from strength in custom AI accelerators or XPUs and networking, grew 220pc from $3.8bn in fiscal 2023 to $12.2bn in fiscal 2024 and represented 41pc of a semiconductor revenue. This drove semiconductor revenue up to a record $30.1bn during the year.

Hok Tan, CEO, Broadcom, Q4 2024, 12 December 2024

There is plenty of excitement to come.

AI networking revenue, which represented 76pc of networking, grew 158pc year on year. This was driven by a doubling of our AI XPU shipments to our three hyperscale customers and four times growth in AI connectivity revenue driven by our Tomahawk and Jericho shipments globally. In Q1, we expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho3AI in their fabrics. Our next-generation XPUs are in three nanometers and will be the first of its kind coming to market in that process node.

We are on track for volume shipment at our hyperscale customers in the second half of fiscal 2025. 

we see our opportunity over the next three years in AI as massive. Specific hyperscalers have begun their respective journeys to develop their own custom AI accelerators or XPUs, as well as network these XPUs with open and scalable Ethernet connectivity. For each of them, this represents a multiyear, not a quarter-to-quarter journey.

As you know, we currently have three hyper-scale customers who have developed their own multi-generational AI XPU road map to be deployed at varying rates over the next three years. In 2027, we believe each of them plans to deploy one million XPU clusters across a single fabric. We expect this to represent an AI revenue serviceable addressable market, or SAM, for XPUs and network in the range of $60bn to $90bn in fiscal 2027 alone. We are very well positioned to achieve a leading market share in this opportunity and expect this will drive a strong ramp from our 2024 AI revenue base of $12.2bn.

Keep in mind though, this will not be a linear ramp. We’ll show quarterly variability. To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next-generation AI XPUs. We have line of sight to develop these prospects into revenue-generating customers before 2027 and could therefore expand the SAM significantly.

So, the reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business.

Hok Tan, CEO, Broadcom, Q4 2024, 12 December 2024

Share Recommendations (17 December 2024)

Broadcom. AVGO

Dave Inc. DAVE

Strategy – Keep Buying Great Stocks

Excessive preoccupation with value can blind investors to the big picture. Led by Generative AI, which is itself based on a combination of rapidly increasing computing power and data resources that may double annually, technology is at an inflexion point.

The world is entering a period of rapidly advancing technology with many wonders to come. This is new territory. Technology has never advanced so fast in the past. The 1960s, even the 1980s, look like the Stone Age and Tesla alone is promising extraordinary developments in the coming years.

Many companies I look at are coping with explosive demand, hence the staggering sales and soaring profits being reported. It is a special time to be an investor and traditional investment metrics may not work.

On a day-to-day basis, many dynamics are at work leading to considerable share price volatility.

Dave Levels The Financial Playing Field

I have featured shares in Dave before and the price has more than doubled. Exciting things are happening at this business.

Dave is on a mission to build products that level the financial playing field. The app launched in 2017 to help Americans take control of their finances. Since then, Dave has brought its 11M members the products other banks won’t: ExtraCash™ up to $500¹, goal tracking, and simple ways to find Side Hustles when they’re behind on their budget.

Dave website

The business is growing rapidly.

Prospects look good.

Dave has a strong sense of mission.

Our company was founded on the belief that far too many Americans are underserved by traditional financial institutions. Dave provides critical financial support that traditional banks often don’t offer, including free checking and savings accounts and access to credit without credit checks, late fees or interest. Our members consistently share how much they rely on us to meet their essential needs with over 1.2m App Store reviews and a 4.8 star rating on iOS. Our success is rooted in delivering meaningful value through innovative and accessible product experiences, a commitment that has driven our success, and we believe will continue to support our growth and profitability moving forward. transparency, compliance and customer trust are our highest priorities as we evolve to meet our members’ needs.

Jason Wilk, CEO and co-founder, Dave Inc., Q3 2024, 12 November 2024

The company is making plans for an exciting future.

With the consistent growth of our member base and the ongoing expansion of our product capabilities, earlier today we announced that we entered into a nonbinding letter of intent to form a strategic partnership with what we believe to be one of the most highly respected sponsor banks in the fintech ecosystem. We anticipate that this new bank partner, whose parent is publicly traded, will leverage its scale, experience and strong compliance and risk management capabilities to sponsor our credit and banking products. We anticipate that this partnership will further diversify our key commercial relationships and better position us to launch next-generation products in support of Dave’s mission of leveling the financial playing field for everyday Americans.

2024 has been an exceptional year thus far, highlighted by record performance quarter after quarter. We believe it’s clear that our strategic focus on increasing access to ExtraCash, through product and underwriting enhancements, winning deeper wallet share of our members’ banking needs, and expanding our base of members benefiting from these products has positioned us well for the future.

Jason Wilk, CEO and co-founder, Dave Inc., Q3 2024, 12 November 2024

Dave Inc. is a more speculative investment but it is targeting an area of huge unmet need and executing well. They are optimistic about the outlook.

Our outlook remains incredibly strong. We think we’re serving a really big market here with best-in-class products and solutions. And we think that that really just lays the groundwork for really solid growth for many years to come.

Kyle Beilman, CFO, Dave Inc., Q3 2024, 12 November 2024