Broadcom recently made headlines with a surprising earnings report, causing a notable surge of 15% in its after-hours stock price.

The company released its fourth-quarter financial results, exceeding expectations not only with its earnings but also revealing the remarkable growth of its artificial intelligence (AI) revenue, which more than doubled over the past year.

One of the most enticing aspects shared during the earnings call was from the CEO, who disclosed that Broadcom is actively collaborating with three major cloud customers to develop custom AI chips

This unexpected news is largely credited for the impressive post-market rise in the company's stock price.

According to the financial report, Broadcom reported revenues of $14.054 billion for the fourth quarter, reflecting a 51% year-on-year increase, albeit slightly shy of the market's expectations of $14.08 billionBreaking it down into segments, the semiconductor solutions division generated $8.23 billion, up 12%, while the infrastructure software division saw revenues soar to $5.824 billion, marking an astounding increase of 196%.

When adjusted for non-GAAP accounting standards, the net profit reached $6.995 billion, representing a 45% increase year-on-year, with adjusted earnings per share coming in at $1.42, surpassing the expected $1.38.

Looking ahead, Broadcom anticipates revenues for the first quarter of fiscal year 2025 to hit $14.6 billion, signifying a 22% increase compared to the previous year, aligning closely with market forecasts

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The company also expects the adjusted EBITDA margin for this quarter to be approximately 66% of revenue.

The semiconductor solutions group, which includes AI chips, remains the largest segment of Broadcom's business, with revenue growth of 12% to $8.23 billion.

Broadcom noted an unprecedented demand for generative AI infrastructureThis surge in demand is reflected in its annual AI revenue growth of 220%, bringing the total to $12.2 billionThis AI revenue comprises sales from dedicated chips as well as Ethernet networking components used to connect thousands of chips into clusters.

The company projects a robust 65% growth in AI product revenues for the first quarter of fiscal year 2025, significantly outpacing the overall 10% growth expected for its semiconductor solutions segment.

In the current quarter, the infrastructure software division generated $5.82 billion, nearly doubling from the $1.96 billion seen in the previous year

This robust performance has been attributed in part to the company's acquisition of VMware for $69 billion, completed in the second quarter of the previous yearBroadcom plans to increase its quarterly dividend for fiscal year 2025 by 11%, bringing it to 59 cents per share.

In the earnings call, the company asserted that revenue from AI products is anticipated to grow by 65% year-on-year in the first quarter of fiscal 2025, significantly outpacing the approximately 10% growth in overall semiconductor salesFurthermore, the potential market for AI components designed for data center operators is projected to reach up to $90 billion by fiscal year 2027. CEO Hock Tan emphasized, "There are significant opportunities in AI chips over the next three years."

Broadcom's CEO elaborated that they are working with three "very large customers" to aid in the development of proprietary AI chips

He added that by the end of 2027, these customers are expected to deploy over a million AI chips in their interconnected clusters, presenting a substantial profit opportunity for BroadcomTan projected that by then, the overall market potential for AI chips (referred to as "XPUs" by the company) and related networking components is expected to rise to between $60 billion to $90 billion annually.

Broadcom has not disclosed the identities of these three major customers.

Holger Mueller, an analyst with Constellation Research Inc., remarked that Broadcom's performance this quarter was impressive, concluding an outstanding fiscal year

He stated that the company has become one of the primary beneficiaries of the AI trend, and he believes that its success in this area will continue to growAdditionally, he commended Broadcom's swift integration of VMware into its infrastructure software division.

Mueller noted, "Tan has mentioned that Broadcom has achieved significant design wins, and we know that Google Cloud is among them, with Apple being a potential partner as well." He believes that integrating VMware primarily offers revenue diversification, providing Broadcom with growth opportunities even if the chip industry faces downturns.

He highlighted that previously, semiconductor revenue accounted for about 80% of Broadcom's total business; this figure has now dropped to around 60%. In the meantime, the overall revenue base has expanded by nearly $5 billion