This week, the stock price of semiconductor and software giant Broadcom, headquartered in the United States, has risen significantly, continuously breaking historical highs. On Friday, December 15th, the US stock market closed, with Broadcom's weekly increase of 17.89% to $1129.74, bringing its market value to $466.284 billion.
Since the beginning of this year, Nvidia has benefited from the surge in chip demand brought about by the explosion of generative AI, making Nvidia, which has access to GPU resources, the most dazzling presence in the US stock market. However, NVIDIA gradually showed a peak in growth in the second half of the year, while Broadcom continued to make vigorous progress. In the past six months, NVIDIA's stock price has risen by 14.52%, while Broadcom has risen as high as 30.14%, which is twice NVIDIA's and also higher than more well-known chip companies such as AMD, Intel, and Qualcomm. It can be called a hidden winner.
In its latest report, Citigroup pointed out that Broadcom can directly benefit from AI demand, becoming the second largest semiconductor company in market value second only to Nvidia. The revenue generated by AI infrastructure is expected to double from $4 billion in fiscal year 2023 to $8 billion in fiscal year 2024, directly driving Broadcom's sharp rise this week. At present, NVIDIA's market value is 1.2 trillion US dollars, with TSMC in second place at 475.8 billion US dollars. Broadcom is only one step away from replacing TSMC.
Broadcom caught up with the trend of AI, closely related to its mastery of chip design capabilities and chip communication technology, making it a key partner for large companies such as Google to independently develop AI chips. The reason why Broadcom was able to establish a moat in the chip field is due to a series of bold and aggressive M&A expansion paths led by CEO Hock Tan. With his superb skills, Chen Fuyang has also become a crucial CEO of Chinese semiconductor companies like NVIDIA's Huang Renxun and AMD's Su Zifeng.
Nvidia's GPU has become the preferred chip for AI big models, and the market is in short supply. However, technology giants are not willing to pay high Nvidia taxes. Google has already started researching its own AI chip TPU, and the outsourcing service provider for its chip implementation is Botong. It is reported that Broadcom participated in the design of TPUs for each generation and obtained a 70% profit margin from Google's TPU orders.
The key technological capability of Broadcom is the chip communication technology called SerDes (serializer/deserializer), which can significantly improve the communication efficiency between chips. In the global 50GB/S SerDes market, Broadcom holds a monopoly share of 76%. Tesla, Meta, Tesla and other companies also need to choose to cooperate with Broadcom in their self-developed chips.
Broadcom revealed in a recent conference call that it has reached chip design cooperation with more large companies. On the other hand, Broadcom's Ethernet switch growth in the AI field is also strong, expected to increase to $800 million in fiscal year 2023 and double to $1.6-2 billion in fiscal year 2024. That's why Citigroup pointed out that Broadcom can directly benefit from AI demand, becoming the second largest semiconductor company with a market value second only to Nvidia.
Bo Tong's acquisition of SerDes, a key technology, can be said to be an unintentional addition to its M&A expansion. In 2013, Anhuagao, the predecessor of present-day Broadcom, acquired chip company LSI and obtained its high-speed network and chip customization business. The related SerDes technology patents were developed by Cathy Liu, a Chinese scientist at LSI.
In 2015, Anhuagao acquired Broadcom for $37 billion higher than its own market value, with the latter's revenue being twice that of Anhuagao. The merged company retained the more well-known name of Broadcom and became the fifth largest semiconductor company in the world. Ten months after this transaction, Broadcom acquired data center network provider Boko for $5.9 billion. In terms of software business, software supplier CA Technologies, network security group Symantec's security business, and the world's fourth largest system software company VMware have successively been acquired by Broadcom.
Such radical mergers and acquisitions are closely related to the strong style of CEO Chen Fuyang. Chen Fuyang, who is currently 70 years old, is a Chinese born in Penang, Malaysia. Compared to Huang Renxun and Su Zifeng, he appears less in front of the media, but is hailed as a "fierce crocodile" in the semiconductor industry. He excels at expanding Broadcom's patent moat and strengthening its market position through continuous mergers and acquisitions.
The most prominent example of Chen Fuyang's acquisition of the Madman brand is the Qualcomm acquisition case. In 2017, Broadcom attempted to acquire semiconductor giant Qualcomm for $130 billion, but was strongly opposed by Qualcomm and ultimately vetoed by the Trump administration on national security grounds. If this transaction were successful that year, it would have become the largest acquisition case in semiconductor history.
After the acquisition, Chen Fuyang usually adopts bold business and personnel adjustments to improve the company's financial indicators such as revenue and profit margin, driving the stock price up all the way. After Broadcom acquired VMware for $61 billion on November 22nd, news quickly spread that it would lay off 1267 positions starting from January next year.
On the other hand, Chen Fuyang relies on his patent moat to maximize his own interests in cooperation. In 2021, Broadcom strongly requested a 30% price increase from Google and also signed an exclusive agreement with Amazon. Google certainly wants to break free from the constraints of Broadcom. In September, there were rumors that Google would no longer purchase Broadcom's chips, causing the latter's stock price to drop by nearly 4% on the same day. However, analysts generally believe that Google currently does not have the ability to produce its own TPU.