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Without anyone really noticing, a tech titan you’ve probably never heard of has managed to kick Tesla out of the so-called ‘Magnificent Seven’ club.

Broadcom is a tech company that produces both hardware and software and while it’s well-known in the infotech world, many people were surprised to hear that its market cap, currently around $803 billion (R15.4 trillion), is now higher than even Tesla (at $768 billion).

The Magnificent Seven are the most valuable US technology businesses in terms of market capitalisation. In descending order, they are Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and now Broadcom.

Broadcom is a descendant of Hewlett-Packard, which in 1999 split off a company called Agilent Technologies, which in turn sold a company called Avago to two private equity firms in 2005. Avago began buying up semiconductor companies, including Broadcom, which it acquired in 2015 and renamed.

“Broadcom operates pretty much like a PE firm, where it invests in assets that can deliver quick returns,” says Naveen Chhabra, an analyst at the Forrester research and consulting firm.

Last November, Broadcom made a major move by acquiring cloud computing firm VMware, prompting Wall Street to take serious note.

“They appear to be killing it on VMware.” According to Bernstein analyst Stacy Rasgon, resulting in the company “significantly exceeding expectations in the quarter and appears poised to continue growth.”

Wi-Fi 7 helps to connect everything, from the present to the future. #ConnectedByBroadcom #WiFi7 pic.twitter.com/cUXc5b2nk6

— Broadcom (@Broadcom) September 27, 2024

Clever acquisitions and apparent good management seem central to Broadcom’s incredible growth, but some analysts believe this alone cannot fully explain the company’s phenomenal growth. However, some have pointed to the recent AI frenzy as an area the company seems to be saddling up with.

One of Broadcom’s most important businesses is designing semiconductors – computer chips – and in the past year, demand has been sky-high. Broadcom’s sales of AI chips in 2023 were $4.2 billion, and the company expects AI chip sales to rocket to $12.1 billion this year and $16.9 billion next year.

It’s Broadcom’s chip expertise and VMware’s computing success that seems to have propelled Broadcom’s market cap from just above that of McDonald’s to above even Tesla.

Much of the company’s success is thanks to CEO Hock Tan, who was recruited to run the company when Avago was split off in 2005. Having spent most of his career in tech companies, he also held finance jobs at PepsiCo and General Motors, perhaps leading to Broadcom’s joint expertise in technology and finance.

Tan seems to be worth it, and last year he was reported to have taken home a massive $162 million paycheck.

Wall Street seems to love Tan and his managing of Broadcom at the moment, with even PMorgan’s claiming the stock “remains our top pick in semiconductors.”

Despite all this, the company has managed to fly under the radar, but that might just change now that they have kicked Tesla out of The Magnificent Seven, so remember the name next time you want to invest.

[source:yahoofinance]