Broadcom announced $30 billion share buyback, signaling confidence in networking chip demand durability amid AI buildout.
Broadcom's wireless manufacturing is poised for growth following its recent deal with Apple, though custom AI chips and networking are expected to be the company's primary growth drivers going forward.
Broadcom's stock has experienced volatility this year, currently up approximately 15% year-to-date while trading roughly 20% below its recent highs. Against this backdrop, the company provided a significant catalyst when Apple committed to spending more than $30 billion on custom Broadcom-based chips and wireless connectivity technologies over the coming years. Unlike some earlier Broadcom deals, this agreement is notably concentrated on wireless technology. The arrangement includes Broadcom's $1.5 billion commitment to expanding and modernizing a facility in Fort Collins, Colorado, which manufactures advanced radio frequency components and cutting-edge wireless connectivity technologies.
While Broadcom's non-AI business has faced headwinds, the company recently articulated a clear path toward "a full cyclical recovery," with the Apple agreement positioned to support this turnaround and introduce an additional growth vector.
The company's most substantial opportunity remains its artificial intelligence business. Broadcom's primary growth engine is its ASIC (application-specific integrated circuit) division, which assists customers in converting designs into custom AI chips suitable for mass production. The company was instrumental in developing Alphabet's highly successful Tensor Processing Units (TPUs), and is benefiting from the significant expansion of these chips as Alphabet's cloud computing operations expand and the company escalates its AI infrastructure investments.
Broadcom's success with Alphabet's TPUs has attracted other hyperscalers—operators of large data centers—who have engaged the company to develop their own custom AI chips. The company projects that custom chip revenue will exceed $100 billion in fiscal 2027, a substantial increase from $64 billion in total revenue and $20 billion in AI revenue during fiscal 2025. Citigroup analysts have projected that AI revenue could reach $180 billion by 2028.
Following the recent sell-off in the AI chip sector, Broadcom's forward price-to-earnings ratio stands at just above 20.5 times fiscal 2027 estimates—a valuation that appears modest for an AI-focused company positioned for such robust growth.
Between its custom chip operations, networking portfolio, and the recovery in its non-AI chip business exemplified by the Apple arrangement, Broadcom is well-positioned for sustained expansion in the coming years.