Broadcom Stock Pops as Earnings and Outlook Beat Expectations on Strong Demand for Custom Artificial Intelligence (AI) Chips

Broadcom's November 2023 acquisition of VMware drove the revenue growth of the infrastructure software segment.

The semiconductor segment's revenue growth was driven by strong AI product growth, offset by continued weakness in non-AI products. AI semiconductor revenue surged 77% year over year to $4.1 billion. AI products include custom AI chips -- which are application-specific integrated circuits (ASICs) -- for hyperscalers and Ethernet networking products for AI data centers. (Hyperscalers are large tech companies that operate huge cloud data centers.)

The following are CEO Hock Tan's comments on the earnings call that I referenced at the top of this article.

[W]e do reaffirm what we said last quarter that we expect these three hyperscale customers will generate a Serviceable Addressable Market, or SAM, in the range of $60 billion to $90 billion in fiscal 2027.

For the second quarter of 2025 (which ends May 4), management expects:

• Revenue of $14.9 billion, which equates to growth of 19% year over year.

• Adjusted EBITDA of 66% of projected revenue. For context, in the just-reported Q1, this profitability metric was 68%.

Going into the report, Wall Street had been modeling for Q2 revenue of $14.7 billion, so the company's revenue outlook was higher than this expectation.

In the earnings statement, Tan said the company expects "AI semiconductor revenue of $4.4 billion in Q2, as hyperscale partners continue to invest in AI XPUs [custom AI chips] and connectivity solutions for AI data centers."

In short, Broadcom turned in a strong report, and the information management shared on the earnings call is bullish for the company's future AI-powered growth.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Broadcom Stock Pops as Earnings and Outlook Beat Expectations on Strong Demand for Custom Artificial Intelligence (AI) Chips was originally published by The Motley Fool