Broadcom's AI chip boom powers record quarter, shares waver

Broadcom delivered a strong fiscal third-quarter performance, with revenue jumping 86% year-on-year to $29.6 billion. Surging demand for custom AI accelerators and networking chips drove the results. (Sources: Broadcom, Reuters, Wall Street Journal, Yahoo Finance)

AI revenue soars 221%

Broadcom's AI semiconductor revenue surged 221% year-on-year to $16.7 billion in the quarter. The company expects AI semiconductor revenue to accelerate further to $21.7 billion in the fourth quarter, up 236% from a year earlier. Broadcom's AI business spans two main lines: custom accelerators, known as XPUs, which it designs for specific cloud customers as an alternative to general-purpose GPUs, and networking chips such as Tomahawk and Jericho switches that connect large clusters of AI servers.

$230 billion AI opportunity

Broadcom sees its AI semiconductor business reaching $115 billion in fiscal 2027 and potentially doubling again to around $230 billion in 2028. The outlook reflects rapidly expanding AI infrastructure spending by major technology companies, as hyperscalers and AI labs commit hundreds of billions of dollars to data center buildouts. Whether that spending trajectory holds is the central variable behind the long-range targets, and investors are watching cloud providers' capital expenditure plans for confirmation.

OpenAI, Google, Anthropic drive demand

Broadcom is benefiting from demand for custom chips from leading AI developers, including OpenAI, Anthropic and Google, while Meta is also expected to begin receiving Broadcom custom chips. The company says it has visibility into major AI deployments extending through 2028. The custom-chip model has made Broadcom a key supplier to cloud giants that want alternatives to merchant GPUs, positioning it as one of the primary beneficiaries of the AI infrastructure buildout alongside Nvidia.

Why did the stock fall?

Despite beating expectations, Broadcom shares came under pressure after the results. The key concern was its $34.8 billion Q4 revenue forecast, which was only slightly above or below some analyst estimates depending on the data set, leaving investors looking for a bigger upside surprise. The reaction illustrates how elevated AI valuations have raised the bar: after a sharp multi-year rally in the stock, in-line or modestly better guidance is no longer enough to satisfy the market.

Strong numbers, high expectations

Broadcom's adjusted earnings came in at $3.32 per share, ahead of the $3.22 analyst estimate, while Q3 revenue also topped expectations. But with AI expectations already extremely high, investors appear to be demanding even stronger guidance and evidence that Broadcom can sustain its rapid AI growth. Key markers ahead include the pace of Meta's custom-chip ramp, new customer program announcements, and whether AI revenue tracks toward the company's fiscal 2027 and 2028 targets.