By Callum Keown

There was nothing subtle about Broadcom's entry into the trillion-dollar club. The chip maker smashed its way in following its earnings last week.

Now it's knocking on the door of another exclusive gathering -- the Magnificent Seven. The criteria to officially join the unofficial Mag 7 is less clear but Deutsche Bank strategist Jim Reid noted Broadcom was "fast approaching" the rest of the group in size.

Broadcom is now the eighth most valuable U.S. company with a market cap of $1.1 billion, around $400 billion off Mag 7 member Tesla's valuation. The stock has climbed 48% in December and is up 115% in 2024. After the extraordinary rise of Nvidia (also in the exclusive club), it was likely a matter of time before another AI chip maker joined the really big leagues. Apple, Amazon, Google-parent Alphabet, Meta Platforms, and Microsoft make up the rest of the group.

Broadcom's fourth-quarter earnings were good but its forward commentary really piqued the interest of investors. The company is a key player in making ASICS -- application specific integrated circuits -- for use as custom AI chips.

The company said its AI revenue opportunity, or serviceable addressable market, could hit between $60 billion and $90 billion by 2027 -- just from its three existing hyperscale customers. It also announced two new customers had chosen Broadcom to help develop their next-generation AI chips. William Blair analysts said these were likely to be Apple and OpenAI, adding to its existing clients Google-parent Alphabet, Meta Platforms, and TikTok-parent ByteDance.

The chip maker's shares jumped 24% Friday, catapulting the company to a $1 trillion market capitalization, before rising another 11% Monday. The shares slipped 4% Tuesday and were flat early Wednesday.

However, if it wants to join the Mag 7 -- whatever that actually means -- then Broadcom's dalliance alongside the well-established Big Tech names needs to be longer-lasting. Wall Street remains bullish on the stock, with 87% of analysts rating it Buy. The average price target suggests a 1.7% drop from current levels but it could be that the recent rapid rise means many are yet to adjust their targets.

Write to Callum Keown at callum.keown@dowjones.com

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December 18, 2024 07:35 ET (12:35 GMT)

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