This week, the stock price of Broadcom, a US-based semiconductor and software giant, has risen sharply and continues to break all-time highs. At the close of U.S. stocks on Friday, December 15, Broadcom's weekly increase reached 17.89%, reporting at US$1,129.74, with a market value of US$466.284 billion.

Since the beginning of this year, benefiting from the surge in chip demand brought about by the explosion of generative AI, Nvidia, which controls GPU resources, has become the most dazzling presence in the US stock market.However, NVIDIA gradually showed that its growth rate peaked in the second half of the year, while Broadcom continued to make rapid progress. In the past six months, NVIDIA's stock price has increased by 14.52%, while Broadcom's stock price has increased by 30.14%, which is twice that of NVIDIA and also higher than that of AMD, Intel, Qualcomm and other more famous chip companies. It can be called a hidden winner.

Citigroup pointed out in its latest report that Broadcom can directly benefit from AI demand and become the second largest semiconductor company in market capitalization after Nvidia. Revenue from AI infrastructure is expected to double from US$4 billion in fiscal year 2023 to US$8 billion in fiscal year 2024, directly driving Broadcom's surge this week. Currently, NVIDIA has a market value of US$1.2 trillion, and the second-placed TSMC is US$475.8 billion. Broadcom is only one step away from replacing TSMC.

Broadcom has caught up with the AI ​​trend, and its chip design capabilities and chip communication technology are inseparable, making it a key partner for Google and other major manufacturers to develop self-developed AI chips.Broadcom's ability to build a moat in the chip field is inseparable from CEO Hock Tan's series of bold and aggressive mergers and acquisitions. With his superb operations, Chen Fuyang has also become as important a Chinese semiconductor company CEO as NVIDIA Huang Renxun and AMD Su Zifeng.

NVIDIA's GPU has become the chip of choice for large AI models, and the market is in short supply. However, technology giants are not willing to pay the high "NVIDIA tax." Google has already begun researching its own AI chip TPU, and the outsourcing service provider for its chip implementation is Broadcom. It is reported that Broadcom has participated in the design of every generation of TPU and obtained a 70% profit margin from Google's TPU orders.

Broadcom's key technical capability is a chip communication technology called SerDes (serializer/deserializer), which can greatly improve the communication efficiency between chips. In the global 50GB/S SerDes market,Broadcom holds a 76% monopoly share. Tesla, Meta, Tesla and other companies also need to choose to cooperate with Broadcom when developing self-developed chips.

Broadcom revealed in a recent conference call that it has reached chip design cooperation with more large companies. On the other hand, Broadcom's Ethernet switches in the AI ​​field are growing equally strongly and are expected to grow to US$800 million in fiscal year 2023 and double to US$1.6 billion to US$2 billion in fiscal 2024.That's why Citi pointed out that Broadcom can directly benefit from the demand for AI and become the second-largest semiconductor company in market value after Nvidia.

Broadcom's acquisition of the key technology of SerDes can be said to be an "unintentional step" for its expansion through mergers and acquisitions. In 2013, Avago, the predecessor of Broadcom, acquired the chip company LSI and obtained its high-speed network and chip customization business. The relevant SerDes technology patent was spearheaded by Cathy Liu, a Chinese scientist at LSI.

In 2015, Avago acquired Broadcom for US$37 billion higher than its own market value. The latter's revenue was twice that of Avago. The combined company, which retains its better-known name Broadcom, ranks as the fifth-largest semiconductor company in the world. Ten months after this deal, Broadcom acquired data center network provider Brocade for $5.9 billion. In terms of software business, software supplier CA Technologies, network security group Symantec's security business, and the world's fourth largest system software company VMware have been acquired by Broadcom.

Such radical mergers and acquisitions are closely related to CEO Chen Fuyang's strong style. Chen Fuyang, 70, is a Chinese born in Penang, Malaysia. Compared with Jen-Hsun Huang and Zifeng Su, he has made fewer appearances in front of the media, but is known as a "fierce predator" in the semiconductor industry.He is good at making big gains out of small things, broadening Broadcom's patent moat and strengthening its market position through continuous mergers and acquisitions.

The case that best reflects Chen Fuyang’s reputation as an acquisition maniac is the Qualcomm acquisition. In 2017, Broadcom attempted to acquire semiconductor giant Qualcomm for US$130 billion, but Qualcomm strongly opposed it and was ultimately rejected by the Trump administration on national security grounds. If this transaction were successful that year, it would become the largest merger and acquisition in the history of semiconductors.

After the acquisition, Chen Fuyang usually uses drastic business and personnel adjustments to improve the company's financial indicators such as revenue and profit margins, driving up the stock price. After Broadcom acquired VMware for US$61 billion on November 22, news soon spread that 1,267 positions would be eliminated starting in January next year.

On the other hand, Chen Fuyang relied on the patent moat in his hands to maximize his own interests in the cooperation. In 2021, Broadcom made a strong request to Google for a 30% price increase, and also asked to sign an exclusive agreement with Amazon. Of course, Google wants to get rid of Broadcom's stranglehold. In September, there were rumors that Google would no longer buy Broadcom's chips, causing the latter's stock price to fall by nearly 4% that day. However, analysts generally believe that Google does not yet have the ability to produce TPUs on its own.