Broadcom is emerging as a major beneficiary of the rapid expansion in artificial intelligence infrastructure, with its AI semiconductor business posting strong growth and the company raising its long-term revenue outlook.
The semiconductor and infrastructure software company expects AI revenue to reach $115 billion in fiscal 2027 and $230 billion in fiscal 2028, supported by rising demand for custom chips and AI networking.
Custom AI chips drive Broadcom’s growth
Broadcom’s AI semiconductor revenue surged 221% year over year in fiscal third quarter ended Aug. 2.
During the quarter, the company began mass shipments of its Ironwood TPU v7 chips to Alphabet and Anthropic and started shipping Alphabet’s next-generation TPU v8i chips.
Broadcom said it is responsible for Alphabet’s TPU v8i inference version, while MediaTek handles the v8t training version.
The company also said it brought the v8i product to market faster than MediaTek despite starting later.
The company’s customer pipeline is also expanding.
Anthropic is expected to become Broadcom’s largest customer next fiscal year, with plans to deploy 5 gigawatts of TPU v8i capacity in fiscal 2027 and 10 gigawatts in fiscal 2028.
Alphabet is expected to remain another major customer, generating tens of billions of dollars in TPU revenue annually in the coming years.
OpenAI is projected to become Broadcom’s second-largest chip customer, with 5 gigawatts of its Jalapeño chip and successor expected to be deployed in 2028.
Broadcom also expects to supply Meta Platforms with 3 gigawatts of custom MTIA chips through 2028.
Strong results and higher AI revenue outlook
Broadcom reported overall fiscal third-quarter revenue of $29.6 billion, up 86% from a year earlier.
Adjusted earnings per share increased 96% to $3.32, exceeding analyst expectations compiled by LSEG of $3.24 in adjusted EPS and $29.4 billion in revenue.
Semiconductor solutions revenue rose 127% to $20.8 billion, although non-AI semiconductor revenue increased only 5% to $4.2 billion. Infrastructure software revenue climbed 29% to $8.8 billion.
Broadcom’s overall gross margin declined 210 basis points to 75%, partly reflecting the larger contribution from semiconductor revenue. Semiconductor gross margin was 76%, compared with 84% for infrastructure software.
For fiscal fourth quarter, Broadcom expects revenue to reach $34.8 billion, representing 93% year-over-year growth.
AI revenue is forecast to rise 236% to $21.6 billion, while gross margin is expected to be 73%.
The company said demand for fiscal 2027 AI revenue is already above its $115 billion projection, although supply needs to improve.
It expects to have sufficient supply to meet its fiscal 2028 outlook and forecasts adjusted EPS of more than $30 that year.
Broadcom stock outlook amid valuation debate
Despite the strong AI growth outlook, Broadcom shares have faced market skepticism. Equity analyst and Mina Vista Capital Management co-founder Bruno Montoya Amador said in a Seeking Alpha report that Broadcom is positioned to deploy multi-gigawatt AI chip capacity with Anthropic and OpenAI.
He described current market skepticism as excessive, pointing to Broadcom’s expanding partnerships and the scale of planned AI deployments.
Amador also highlighted dip-buying support around $360 and said operating margins could remain above 68% despite pressure on gross margins.
Broadcom’s valuation has also become a focus for investors. The stock was described as trading below 21 times forward earnings, while Motley Fool put its valuation at 11.5 times the company’s fiscal 2028 earnings guidance.
With AI revenue expected to double in fiscal 2027 and again in fiscal 2028, Broadcom’s future performance will depend on its ability to expand chip supply while maintaining profitability as semiconductor revenue becomes a larger part of its business.
The post Broadcom stock: Why the AI chipmaker’s growth story is gaining steam appeared first on Invezz