Broadcom reports record Q2 revenue driven by growth in AI semiconductor business

Broadcom (AVGO) reported strong Q2 results, with revenue up 20% year-over-year to $15 billion, driven by a 46% surge in AI semiconductor revenue to $4.4 billion. CEO Hock Tan cited continued momentum in AI and VMware as key growth drivers, projecting Q3 revenue of $15.8 billion and an adjusted EBITDA margin of at least 66%. Jefferies reiterated its 'Buy' rating with a price target of $300, highlighting Broadcom's position as a key beneficiary of AI infrastructure demand, though shares dipped 2.8% despite the positive outlook.

Analysis

Broadcom Inc. reported robust second-quarter financial results, with revenue increasing 20% year-over-year to $15 billion, marginally surpassing the Wall Street consensus of $14.97 billion. Adjusted earnings per share stood at $1.58, beating estimates of $1.56. This performance was significantly driven by the AI semiconductor segment, which saw its revenue grow 46% year-over-year to over $4.4 billion, and the continued momentum from VMware. Specifically, AI networking revenue, accounting for 40% of the AI total, surged 170% year-over-year. The company projects third-quarter revenue of approximately $15.8 billion, representing a 21% year-over-year increase and slightly ahead of analyst expectations, with an anticipated adjusted EBITDA margin of at least 66%. Jefferies analysts reiterated a 'Buy' rating and increased their price target to $300, citing Broadcom's sustained outperformance and its strategic position as a key beneficiary of AI infrastructure demand, particularly with the upcoming ramp of Google’s TPU v7p (Ironwood) expected to drive ASIC growth. Broadcom management anticipates AI revenue growth to accelerate to $5.1 billion in Q3 and forecasts AI segment growth in fiscal 2026 to mirror fiscal 2025's robust 60% year-over-year pace, substantially exceeding current Street consensus estimates of 35%. While the non-AI business segments are described as 'bouncing along the bottom,' a return to growth is anticipated next quarter, with two end markets expected to show improvement. VMware integration is progressing well, with 87% of the top 10,000 customers converted to the VCS platform, achieving double-digit annual recurring revenue growth. Despite these strong results and positive guidance, Broadcom shares experienced a 2.8% dip to approximately $253 in pre-market trading.

Key Decisions for Investors

• Investors should consider the significant growth momentum in Broadcom's AI semiconductor business and strong Q3 guidance, which, coupled with analyst upgrades, suggests a positive outlook despite the immediate post-earnings share price dip.
• It is advisable to monitor the execution of key AI product ramps, such as Google's TPU v7p, and the nascent recovery signs in the non-AI segments, as these will be crucial for validating the company's ambitious growth trajectory.
• Evaluate the sustainability of the projected 60% year-over-year AI growth for fiscal 2026 and the high adjusted EBITDA margins, as achieving these targets will be pivotal for future valuation expansion and share performance.