Oracle CEO Safra Catz May Have Sparked a New Growth Wave for Broadcom Stock

Core Viewpoint - Investors should focus on companies building global AI infrastructure, as indicated by Broadcom's growth potential revealed during Oracle's earnings call [1][2]. Group 1: AI Infrastructure and Spending - Oracle's management reported a significant increase in AI infrastructure spending, with a 359% year-over-year rise in remaining performance obligations (RPO) amounting to $455 billion [2]. - OpenAI has signed a five-year, $300 billion deal with Oracle for computing capacity, necessitating rapid expansion of Oracle's data center footprint, which will benefit suppliers like Broadcom [4]. - Oracle plans to invest nearly $35 billion in capital expenditures for fiscal 2026, primarily for data center equipment, indicating a surge in demand for Broadcom's products [5]. Group 2: Demand for Broadcom's Products - The increasing inferencing workloads in AI will drive demand for Broadcom's ultra-fast Ethernet switches, optical interconnects, and custom AI chips [8]. - Broadcom's revenue for the third quarter of fiscal 2025 grew 22% year-over-year to $16 billion, with AI revenue rising 63% year-over-year to $5.2 billion, driven by demand from major hyperscaler clients [9][10]. - Broadcom has secured $10 billion in XPU-based AI rack orders from a new client, with expectations for faster AI revenue growth in fiscal 2026 [11]. Group 3: Networking Challenges and Solutions - The demand for Ethernet-based networking is surging as AI clusters expand, necessitating ultra-high bandwidth networking for efficient memory sharing [12]. - Broadcom's Ethernet-based Tomahawk switches and Jericho Ethernet fabric routers are effective in connecting GPUs/XPUs within and across data centers [13]. - The preference for Ethernet among hyperscalers is due to its open-source nature and familiarity, which will further increase demand as AI clusters grow [15]. Group 4: Valuation and Investment Outlook - Broadcom's current valuation is high at 36 times forward earnings, but the company is well-positioned for multiyear growth due to its $110 billion backlog and increasing demand for AI-optimized products [16].