Broadcom’s AI chip business jumps 106% as it cruises to another solid earnings and revenue beat – News

Artificial intelligence chipmaker Broadcom Inc. showed little sign of slowing down as it delivered its latest financial results, easing past Wall Street’s expectations and offering solid guidance for the current quarter — sending its stock 4% higher in extended trading.

The company reported first-quarter adjusted earnings of $2.05 per share, beating the analysts’ projection of $2.03 per share, while revenue jumped 29% from a year earlier to $19.31 billion, ahead of the $19.18 billion consensus. Net income for the quarter came to $7.35 billion, up from $5.5 billion in the same period one year ago.

“We have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027,” Broadcom Chief Executive Hock Tan (pictured) told analysts on a conference call. “We have also secured the supply chain required to achieve this.”

Looking at the current quarter, Broadcom anticipates $22 billion in sales, way ahead of the Street’s $20.56 billion forecast. It’s also forecasting an adjusted profit margin of 68%, ahead of the 66% consensus. Semiconductor solutions revenue is expected to top $14.8 billion, the company said, quit a bit higher than the Street’s $13.06 billion consensus estimate.

Broadcom is enjoying stellar growth thanks to the vital role it plays in helping companies such as Google LLC, Amazon Web Services Inc. and Microsoft Corp. design their own AI processors and turn them into silicon. It provides essential services, backed technologies and intellectual property to these companies. Once their designs are ready, they’re shipped off to chip fabrication plants such as those operated by Taiwan Semiconductor Manufacturing Co.

Tan said the company’s AI chip-related revenue jumped 106% from a year earlier, to $8.4 billion. This growth was driven by “robust demand for custom AI accelerators and AI networking,” he said. Broadcom also sells network interconnects, software and other components needed to link AI processors into large clusters.

All told, Broadcom’s semiconductor solutions unit delivered $12.52 billion in sales, above the analysts’ projection of $12.25 billion. However, its infrastructure solutions business failed to meet expectations, with sales of $6.8 billion falling short of the Street’s $7.02 billion target.

There has been a lot of concern in recent weeks that AI models could pose a competitive threat to traditional enterprise software companies, and many of the biggest have come under pressure. Their stocks have declined this year, and the iShares Expanded Tech-Software Sector Exchange-Traded Fund has so far lost 19% of its value.

But it seems nothing can derail Broadcom, which notably acquired the server virtualization software giant VMware in 2023. Tan told analysts this quarter was just a blip, and that he expects revenue from the infrastructure software business to grow 9% in the current quarter to $7.2 billion, ahead of the Street’s consensus. “Let me reinforce that this growth in our software business reflects our focus and investments in foundational infrastructure,” he insisted. “Our infrastructure software is not disrupted by AI.”

Zacks Investment Research analyst Andrew Rocco told News that Broadcom’s acquisition of VMware has been successful so far, adding to the strong momentum fueled by growth in AI semiconductors. “Broadcom is merely entering the early innings of its hyper-growth phase,” he predicted. “I believe investors will gravitate toward the stock, because regardless of which software companies win the AI race, they are all investing in Broadcom’s networking chips and custom accelerators.”

Tan offered a very rosy outlook in terms of its custom AI chip business. In December, he revealed that the AI model maker Anthropic PBC had placed a $10 billion order for custom accelerators made by Google, and he offered a deeper perspective on that deal today. He said he expects Anthropic to buy 1 gigawatt’s worth of Google’s tensor processing units in 2026, and more than 3 gigawatts in 2027.

In addition, he said he expects OpenAI Group PBC to deploy over a gigawatt of its first-generation custom processors in 2027. Like the hyperscalers, OpenAI has also been working with Broadcom to develop its own AI chips. Meanwhile, Tan said he expects the company to get a big boost from Meta Platforms Inc.’s next-generation MTIA custom chip, even though some analysts have raised concerns in recent weeks that its development appears to have stalled.

“The MTIA roadmap is alive and well,” Tan said, dismissing such concerns. He added that it’s shipping now and Meta is targeting “multiple gigawatts” of custom accelerator capacity in 2027 and beyond.

Photo: Sarbjeet Johal (Stackpane)/YouTube