Broadcom's journey to becoming a trillion-dollar company and the impact of Trump's policies.

• On Friday, Broadcom joined the ranks of the eight U.S. tech companies with a market cap of over $1 trillion.
• After a profit beat and optimistic guidance, the stock experienced its best day on record with a 24% jump.
• To use those chips, you must be a Google, a Meta, a Microsoft, or an Oracle, according to Harsh Kumar, an analyst at Piper Sandler.

In 2018, Qualcomm rejected a $120 billion offer from its rival, which was later deemed a potential threat to national security by the Trump administration.

In March of that year, Broadcom withdrew its bid for the largest technology deal on record, stating that Qualcomm was a unique and very large acquisition opportunity.

As it turns out, Broadcom didn't need it.

On Friday, Broadcom shares surged 24%, reaching their all-time high, and lifted the company's market cap above $1 trillion for the first time. As a result, Broadcom became the eighth member of the tech industry's $13 billion club. Since abandoning its Qualcomm offer, Broadcom's shares have increased by more than 760%, outperforming Qualcomm's 165% gain over the same period. Additionally, the S&P 500 has risen by 119%.

Broadcom's official headquarters was in Singapore at the time of its announced acquisition effort, which raised concerns among the Trump administration. Despite filing to redomicile in the U.S., Trump ultimately blocked the deal.

Despite the challenges, Broadcom CEO Hock Tan remained undeterred and continued to take bold risks.

Since then, Broadcom has completed three deals worth over $10 billion, expanding beyond its semiconductor market. In July 2018, it acquired CA Technologies for $19 billion, and in August 2019, it purchased Symantec for $10.7 billion.

In 2022, Tan's largest bet was the acquisition of VMware by Broadcom for $61 billion, which was a significant entry into the market for server virtualization. The deal took 18 months to close and is ranked among the biggest tech deals ever, following only the $68.7 billion acquisition of Activision Blizzard and Dell's $67 billion purchase of EMC.

Broadcom began as a semiconductor company and has since shifted its focus to infrastructure software, with great success. The recent acquisition of VMware was another step towards creating a balanced mix of chips and infrastructure software targeted towards the enterprise, as CEO Tan explained in a September interview with CNBC's Jim Cramer.

Despite revenue falling short of expectations, Broadcom reported better-than-expected profit in its latest quarterly earnings report on Thursday. The company's artificial intelligence business has propelled its growth to rates typically seen in much smaller companies.

In the fourth quarter, AI revenue surged 150% to $3.7 billion, with some of that growth stemming from ethernet networking components used to connect thousands of AI chips.

The infrastructure software division of Broadcom generated $5.82 billion in revenue for the quarter, nearly tripling from last year's $1.97 billion, with a significant increase due to VMware. This resulted in an overall increase in revenue of 51% to $14.05 billion.

Despite the rapid growth of the AI industry, Broadcom has not been able to keep up with Nvidia, whose graphics processing units are used to power the most powerful AI models. Nvidia's market cap has increased by over 170% this year to $3.3 trillion, making it the second most valuable public company in the world after Microsoft. In contrast, Broadcom has only doubled in value this year.

Despite lagging behind Nvidia, Broadcom has positioned itself for significant growth during a time when the former chip giant is downsizing and restructuring. Additionally, Broadcom has surpassed Nvidia, which is valued at $206 billion after experiencing a 14% drop in value this year.

Broadcom's custom AI accelerators, known as XPUs, are different from Nvidia's GPUs. The company announced that it has doubled shipments of XPUs to its three hyperscale customers, which are believed to be Amazon, Microsoft, and ByteDance.

Analysts at Cantor are optimistic about the future of AI and recommend buying Broadcom shares, as they lifted their 12-month target to $250 from $225 after this week's earnings report. The stock closed on Friday at $224.80.

History of big deals

Broadcom, which was founded in southern California in 1991, is the result of a 2015 merger between Avago, spun out of Agilent Technologies in 2005, and Broadcom. Tan, who became CEO of Avago in 2006, was appointed to lead the combined company.

In fiscal 2016, Broadcom generated $13.2 billion in revenue, with its largest business being the production of semiconductors for set-top boxes and broadband access.

In 2018, the company's market cap surpassed $100 billion, with wired infrastructure remaining the primary source of revenue. However, in late 2019, Broadcom shifted its financial reporting to emphasize semiconductor solutions and infrastructure software, with the latter accounting for approximately 73% of revenue in 2020.

Infrastructure software revenue has increased from 21% in the October quarter last year to 41% in the latest period, thanks to VMware. Even without VMware, Broadcom reported a 90% growth in revenue from a year earlier.

The company anticipates a 41% increase in infrastructure software revenue to $6.5 billion and a 10% increase in semiconductor revenue to $8.1 billion in the current quarter. Additionally, AI revenue is expected to surge by 65% year-on-year to $3.8 billion, the company stated.

The market opportunity for Broadcom is expanding due to the increasing demand for computing resources to develop and deploy large language models by major tech companies, as Tan explained to Cramer in September.

"Tan stated that each new generation LLM demands a significant amount of compute, ranging from 2-3x, possibly more, every year. This trend is driving the need for larger and larger compute opportunities, which will primarily be met by XPUs."

In the latest quarter, tech research firm Futuriom reports that Alphabet, Meta, and Microsoft spent a combined $58.9 billion on capital expenditures, representing 63% growth and about 18% of aggregate revenue.

Piper Sandler analyst Harsh Kumar stated on CNBC's "Squawk on the Street" on Friday that Broadcom's unique selling point in the market is its production of high-end custom chips for AI that can help top tech companies achieve up to 30% faster performance and 25% less power consumption.

"To use those chips, you must be a Google, a Meta, or a Microsoft, as Kumar stated. These chips are not intended for everyone."

The most significant news from the call is Broadcom's visibility through 2027.