Broadcom Rallies After AI Chip Deal and Strong Earnings Report

• Broadcom (AVGO) reported fiscal third-quarter adjusted earnings per share of $1.69 and revenue of $15.96 billion, both exceeding expectations, with a 22% year-over-year revenue increase driven by AI advancements.
• The company secured $10 billion in orders for custom AI chips from a fourth customer, projecting fourth-quarter revenue of $17.4 billion and AI revenue of $6.2 billion, while anticipating strong shipments starting in 2026.
• Shares rose about 12% to $343.10 in premarket trading, contributing to a 32% year-to-date gain and a market cap over $1.4 trillion, positioning Broadcom as a challenger to Nvidia (NVDA) in AI chip markets.

Broadcom (AVGO) has demonstrated robust performance in its fiscal third quarter, with adjusted earnings per share reaching $1.69, surpassing the expected $1.65, while revenue hit $15.96 billion against forecasts of $15.83 billion. This strength is underscored by a 22% year-over-year revenue increase, driven significantly by advancements in artificial intelligence technologies. The company’s semiconductor solutions segment, which includes custom AI accelerators known as XPUs, saw sales climb 57% to $9.17 billion. Complementing this, the infrastructure software business, incorporating VMware, grew 43% to $6.79 billion.

Net income for the quarter stood at $4.14 billion, or 85 cents per share, a stark improvement from the prior year’s net loss of $1.88 billion, or 40 cents per share, which stemmed from a one-time $4.5 billion tax provision related to intellectual property transfer to the U.S. AI revenue specifically surged 63% to $5.2 billion, exceeding the company’s earlier projection of $5.1 billion, highlighting Broadcom’s pivotal role in supporting data centers and cloud computing demands.

Looking ahead, Broadcom anticipates $17.4 billion in fourth-quarter revenue, outpacing Wall Street’s $17.02 billion estimate, with AI revenue expected to rise to $6.2 billion in that period. CEO Hock Tan emphasized during an analyst call that the company secured $10 billion in orders for XPUs from a fourth customer, transitioning from prospect to qualified status with production orders now in place. This development has bolstered the firm’s AI revenue forecast for next year, with strong shipments slated to begin in 2026. Tan attributed recent growth to custom AI accelerators, networking components essential for linking thousands of AI chips, and VMware software.

Broadcom’s expertise extends to developing custom chips for clients like Google (GOOGL) and other cloud providers, alongside networking hardware and software critical for AI ecosystems. This positions the company as a key player in the semiconductor industry, where demand for specialized processors continues to escalate amid the proliferation of machine learning applications and data-intensive workloads.

Investor confidence remains high, with shares advancing 32% year-to-date through Friday’s premarket hours and nearly 124% over the past 12 months, propelling the market capitalization beyond $1.4 trillion. In premarket trading Friday, the stock climbed 12% to $343 and change, following the earnings release and guidance. Earlier, in March, Tan noted collaborations with three large cloud customers on new AI chips, projecting sustained AI expansion through next year.

This optimism reflects broader market trends, where Broadcom’s custom processors are viewed as potential challengers to Nvidia’s (NVDA) leading position in AI chip markets. The company’s strategic focus on tailored solutions for hyperscalers aligns with industry shifts toward more efficient, application-specific hardware, reducing reliance on general-purpose GPUs and enhancing overall system performance in cloud environments.

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