Broadcom Update Keeps Eyes on the Prize

As we move toward the holiday weekend, the moves we made on Thursday with the shares of Paccar (PCAR) and Applied Materials (AMAT) have contributing nicely. Now, let’s turn and discuss the quarterly earnings and guidance from Broadcom (AVGO).

On Thursday, we shared some of what we heard, which was enough of run to maintain our One rating and multi-year $525 price target, in more detail. After that, we’ll wrap the day with the Weekly Roundup, allowing you to get an early jump on the holiday weekend. You will, however, have some extra reading coming your way on Saturday as we share 28 fresh signals across several of our investment themes.

Now, to Broadcom…

By the Numbers

Broadcom delivered July quarter EPS of $3.32 per share, $0.10 better than the consensus forecast, on revenue that soared 85.5% higher year over year to $29.59 billion, besting the market’s $29.24 billion forecast. Semiconductor Solutions segment revenue grew 127% year over year to $20.84 billion, ahead of management’s guidance for $20.5 billon. AI semiconductor revenue grew 221% year over year and 54% sequentially to $16.7 billion, also ahead of management’s prior guidance. Infrastructure Software segment revenue grew 29% year over year to $8.75 billion.

For the current quarter, Broadcom guided its top line to $34.80 billion, a touch ahead versus the $34.68 billion consensus, with AI semiconductor revenue for the quarter coming in at $21.7 billion, up 236% year over year.

Learnings From the Earnings Call

We’ve always believed in the need to wait for a company to conduct its earnings call and bring more color to the earnings press release. These days, that is even more the case as we saw when Nvidia (NVDA) CEO Jensen Huang stunned with the guidance of more than 70% top-line growth next year, while still being capacity constrained.

In the case of Broadcom, CEO Hock Tan shared a lot of information, including a longer-term outlook. And the picture he painted Wednesday night, from our vantage point, was a compelling one, especially for the custom AI silicon business.

For the current quarter, Tan shared the following:

During the quarter, we expect to accelerate shipments of Ironwood to Anthropic. We also expect to ramp up high-volume shipments of the TPU version 8i to Google. Shipments of Jalapeño for OpenAI will continue. And for Meta, we expect production shipments of their custom MTIA accelerator optimized for inference and recommendation at scale.

That puts Broadcom’s AI revenue around $58 billion for fiscal 2026 that ends in October. Tan shared that across program wins with Google (GOOGL), Meta (META), Anthropic and others, the target for AI revenue is about $115 billion in 2027, growing to $230 billion in 2028. Amid the explosive growth, Anthropic is expected to become Broadcom’s largest XPU customer in 2027 and sustain that in 2028.

On the earnings call, management went out of their way to tout the relationship with Google, sharing it has:

…been recently strengthened by a long-term agreement to develop and supply future generations of TPUs and AI networking. Under this agreement, we are planning to deliver multi-tens of billions of dollars of TPUs annually over the next several years. We expect this growing demand in ’28 and ’29 to be fulfilled through successive generations of the increasingly complex TPUs we are developing today with Google.

We see that as a direct push back against concerns in the market following the expanded relationship between Google and Marvell (MRVL). With that, we’ll share that, given our history following the mobile phone and then smartphone market, it’s not unusual for customers to work with multiple vendors, some as lead supplier on certain programs and others on different ones. Our perspective is that, between Broadcom, Marvell and Nvidia, we are well covered for AI and data center chip demand.

In the past, we’e shared that when we start to see signs of AI usage peaking, that will be a warning signal to us about the growing risk of excess capacity. Based on the signals we continue to collect, we are a ways off from that happening but, as you’ve heard us say many times in the past, we will continue to track the data.

The one knock for Broadcom is the mix shift toward hardware becoming a larger part of its revenue mix, but at the same time, the overall profit picture should continue to improve as the company ramps these programs. Against that, Tan reiterated the outlook for annual EPS above $30 in fiscal 2028.

In our quick analysis on Thursday, we pointed out the ramp to that level of EPS has AVGO shares trading at a PEG ratio near 0.2% applied to fiscal 2028 EPS of $30. Even if we haircut some of those figures, it’s hard to argue that AVGO shares aren’t cheap. More importantly, the revenue ramp ahead is significant, and that is what we’ll focus on as shareholders.

As we move through the wave of upcoming investor conferences, AI and data center capex comments as well as AI adoption and usage comments will be on our watch list. Given the growing relationship between Broadcom and Anthropic noted above, we have an reason to be extra careful when we reading Anthropic’s eventual S-1 filing.

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At the time of publication, TheStreet Pro Portfolio was long AMAT, AVGO, GOOGL, META, MRVL, NVDA and PCAR shares.