Broadcom: the General Electric of the 21st century?

In recent years Broadcom (NASDAQ: AVGO) has become of the most valuable companies in the world. Its share price rose 145% in 2024. It has surged another 16% so far this year.

Despite being the 8^th largest company in the world, a lot of people have never heard of it. We often get asked: what does Broadcom actually do?

A company without a face

Broadcom makes the computer chips and software that help run the internet, smartphones, and big data centres. Almost every time you go online, Broadcom is involved in some way. Yet few people have heard of it.

That’s partly because Broadcom doesn’t sell directly to consumers. It also doesn’t advertise. And unlike other behind-the-scenes tech giants (for example, Cadence (NASDAQ: CDNS) and Synopsys (NASDAQ: SNPS )) Broadcom doesn’t have a clear identity.

Instead, Broadcom acts more like a private equity firm than a typical tech company. It buys other businesses - not based on brand fit, but on how much money they can make. It then cuts costs, often ruthlessly. While this PE-style growth has made it highly profitable, it has also meant Broadcom lacks a defining essence, so to speak.

The General Electric of today?

To understand Broadcom, it helps to think of General Electric (GE) under Jack Welch in the 1980s and ’90s. GE became the world’s most valuable company by buying up businesses and focusing hard on profits.

Broadcom is doing something similar. Under CEO Hock Tan, it’s bought companies like CA Technologies, Symantec’s enterprise arm, and most recently, VMware. These companies do all sorts of things, from cybersecurity to software for virtual machines. There’s no clear theme. What they share is that they all generate lots of cash.

Tan doesn’t mind if a company sells software or hardware. If it’s profitable and can be streamlined, it’s a target. This approach has worked for shareholders: Broadcom’s profits have soared. But the company still feels like a patchwork of different parts, just like GE once did.

The hidden backbone of AI

Broadcom is now becoming even more important thanks to the rise of AI.

Here, its most crucial role is building the custom chips and switches that move huge amounts of data around inside AI data centres. When explaining Broadcom’s AI switches, the analogy I like to use is an airport. In an AI data centre, Nvidia’s (NYSE: NVDA) chips are like the aeroplanes: processing and transporting data. Broadcom’s switches are like air traffic control: directing queries to the right parts of the data centre and managing workloads. When building data centres, Nvidia and Broadcom’s chips work closely together.

Broadcom also makes a special kind of chip called ASICs (application-specific integrated circuits). These are custom-designed to do one task well: faster and more efficiently than regular chips. Tech giants like Google (NASDAQ: GOOGL)  and Meta (NASDAQ: META) use them to power AI more cheaply and quickly. Only a few companies in the world can make these chips at scale. Broadcom is one of them.

So even though Broadcom doesn’t build AI tools like ChatGPT or image generators, it helps make them possible. And in many ways its role in AI encapsulates the old business adage: “in a gold rush, sell picks and shovels”.

Broadcom’s share price sensitivities

Looking ahead, Wall Street will be watching two things. First, Broadcom’s next big acquisition. Rumours circulated earlier this year that it will acquire parts of Intel. (Broadcom has denied the rumours). Second, its market power in AI hardware. As more tech companies want their own AI chips, Broadcom is one of the few firms that can deliver.

What it means for your portfolio

Broadcom is a rare mix of growth and discipline. It’s part of the AI boom, but it’s not burning through cash like many startups. It has a strong record of buying smart, cutting waste, and delivering returns.

It may not be a household name. But behind the scenes, Broadcom could be one of the most important companies in tech today.

Related ETFs

Our ETFS Magnificent 7+ ETF (CBOE: HUGE)  takes the largest bet on Broadcom of any ETF in Australia. At each rebalance Broadcom takes 10% of HUGE’s assets.