Big tech is going to spend a lot of money in 2025. This year, four of the biggest tech companies in the world plan to spend a total of $320 billion on capital expenditures (capex). Most of that money will be used to build and update data centres for artificial intelligence (AI) that will be used to train and use creative AI.
Nvidia (NASDAQ: NVDA) is going to make a lot of money from all of that. Almost all of the big tech companies stressed again how important it is for them to work with the top graphics processing unit (GPU) creator. But Meta Platforms’s management and Alphabet, the company that owns Google, said that another chipmaker had a bright future.
The fact that big tech companies are likely to spend more in 2025 and beyond could be very good for Broadcom (NASDAQ: AVGO). What did Meta and Google say? Read on to find out what it means for Broadcom owners.
How Unique Chips Are Becoming More Popular
It makes a lot of different kinds of electronics. This is a very important part of AI data centres. It makes chips for network switches, which are what make sure that computers can share data quickly and easily. Broadcom chips basically make sure that Nvidia chips work as well as they can in Google and Meta’s data centres.
But Broadcom also makes other chips that Google and Meta use in their data centres. The Meta Training and Inference Accelerator (MTIA), Meta’s own AI chip, is based on its technology.
Broadcom and Google have been working together on the Tensor Processing Unit (TPU) since 2015. During their fourth-quarter earnings calls, both Meta and Google had good things to say about the special chips they made.
Susan Li, Meta’s chief financial officer, told analysts on the call, “In 2024, we started deploying MTIA to our ranking and recommendation workloads for ads and organic content.” We plan to use MTIA more and more for these purposes all through 2025.
Meta thinks that its chips will eventually take over more and more of Nvidia and other GPUs’ AI data centres. “Next year, we’re hoping to expand MTIA to support some of our core AI training workloads, and over time, some of our GenAI use cases,” Li said after the call.
In the fourth quarter, Alphabet CEO Sundar Pichai said, “We saw strong uptake of Trillium, our sixth-generation TPU.” The company didn’t make its newest TPUs available to everyone until December. That means devs have less than three weeks to start using them in earnest before the end of the quarter. Based on the responses, 2025 might be a big year for TPUs.
For many types of AI tasks, custom AI accelerator chips work better than general-purpose GPUs. Small ways to save money can have a big effect on the bottom line as big tech companies build more data centres. As capex funds rise, it becomes more important to have full control over the technology stack and find new uses for custom chips.
Broadcom Thinks That Long-term Benefits Will Be Even Better
Broadcom is working with more than just Alphabet and Meta to make unique AI accelerators. ByteDance, which owns TikTok, is one of its three biggest users. Also, during the earnings call for the fourth quarter, Broadcom management said that it had two new users who were using its help to make their own next-generation chips. A lot of people think those are Apple and OpenAI.
It’s clear that Apple likes Broadcom’s chips. In the past year, it trained its Apple Intelligence system with Google’s older TPUs. If Apple wants to have more say over how its AI is trained and developed, it could quickly become one of Broadcom’s biggest users.
In three years, the company thinks the market for custom AI engines will reach between $60 billion and $90 billion. Broadcom made about $12 billion in sales last year and was responsible for about 70% of all special AI accelerators.
Its total sales across all of its different businesses in 2024 were only $51.6 billion, so the growth in AI chips could almost double its income if it keeps the same part of the market.
But value is still important, even if the future looks good. As of this writing, Broadcom’s stock is worth 37 times its expected future profits. Even though the chipmaker’s earnings are expected to grow very quickly over the next few years, it’s hard to see why the stock is worth such a high price.
Analysts expect earnings to grow by more than 30% this year, giving the price/earnings-to-growth ratio of about 1. If the stock price dropped to about 30 times 2025 earnings, it might be a good time to buy. Or, if Broadcom’s special chips are adopted even more quickly than expected, as Meta and Google look to use them more in their data centres, the value could rise to that level.
If buyers are interested in the future of AI, Broadcom is a company and stock that they should keep an eye on. But the price is too high right now for me to suggest getting it.
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