Why Stock-Split and Artificial Intelligence (AI) Stock Broadcom Rallied on Thursday

Shares of Broadcom (NASDAQ: AVGO) surged higher on Thursday, jumping as much as 4.9%. As of 1:52 p.m. ET, the stock was still up 4.3%.

The catalyst that sent the artificial intelligence (AI) specialist higher was the robust results delivered by one of the pivotal players in the AI space.

Demand for AI continues

For the third quarter, Taiwan Semiconductor Manufacturing Co., also called TSMC, generated revenue that jumped 39% year over year to 759.7 billion New Taiwan dollars (roughly $23.5 billion), an increase of 36% in U.S. dollars. This fueled earnings per share (EPS) that surged 54% to NT$12.54 (or $1.94 per ADR).

The results were stronger than many had expected. For context, analysts' consensus estimates forecast revenue of $23.1 billion and EPS of $1.80, so TSMC easily surpassed expectations. Management pointed to strong demand for chips used for AI and smartphones as driving the results. The company is also expecting this demand to continue, guiding for strong growth in the fourth quarter.

This came in stark contrast to lithography equipment provider ASML, which reported earlier this week. While the results were generally better than expected, the company dialed back its forecast for 2025, which sent skittish investors scurrying for the exits.

Looking ahead

Broadcom makes many of the ancillary products that support data centers, which are the key repositories of AI technology. Strong results and solid stock price gains led the company to execute a 10-for-1 stock split, which was completed in July. Broadcom executives have reported continued strong demand for AI networking and custom AI accelerators, which they expect will continue for the foreseeable future.

In recent months, there have been concerns about a potential slowdown in the adoption of AI, with some investors taking a step back to see if demand continues to hold up. Investors took TSMC's robust results as evidence that demand for AI continues unabated.

Broadcom is currently trading at 160 times earnings, which might seem egregious, but it's also misleading. Wall Street expects the company to generate EPS of $6.15 in 2025, which works out to 28 times next year's earnings. That's an attractive price to pay for a company that provides critical infrastructure for the AI revolution.

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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.