HSBC discusses Broadcom: acknowledges the reassessment of the ASIC market, but long-term growth potential remains uncertain

HSBC warns that the market is overly optimistic about Broadcom's ASIC business potential, and the company may face challenges in profit growth in the short term, particularly in the wireless business. Since the announcement of its fourth-quarter 2024 results, Broadcom's stock price has risen by 24%. Management hinted during a conference call that the market size for AI revenue serviceable by the company's three major ASIC (Application-Specific Integrated Circuit) customers in fiscal year 2027 is between $60 billion and $90 billion. This market size includes total spending on GPUs, ASICs, memory, and networking equipment. This has led to a massive revaluation of market value. Analysts have generally raised their expectations for Broadcom's ASIC revenue for fiscal years 2026 and 2027, increasing them by 27% and 121%, respectively. However, HSBC believes that the market may be prematurely attributing this opportunity primarily to the ASIC business. HSBC analyst Frank Lee stated in a report on February 10 that Broadcom's serviceable market (SAM) revenue for fiscal year 2027 includes not only ASICs but also GPUs, memory, and networking products. It is still too early to determine the revenue Broadcom can obtain from the entire serviceable market, and it is expected that the performance of the AI business in fiscal year 2025 will still be primarily driven by structural adjustments in the switching business. HSBC also warned that the market may not fully reflect the risks of potential market share loss faced by Broadcom's wireless business. Analysts expect that Apple may use its self-developed Wi-Fi chips for the first time in the iPhone 17, which is set to launch later this year. In HSBC's most pessimistic scenario, if Apple completely stops using Broadcom-designed products, it could lead to an 8% downward revision in Broadcom's earnings per share expectations for fiscal year 2026, which could be a 14% downward adjustment compared to market consensus expectations