We're lifting our price target on Broadcom after its AI business impresses once again

Broadcom reported strong fiscal Q2 2025 results, with revenue up 20% year-over-year to $15 billion and adjusted EPS up 44% to $1.58, both slightly exceeding expectations. The company's AI business is a key driver, with CEO Hock Tan forecasting sustained growth into fiscal 2026, particularly in custom AI chips and networking solutions; Q3 guidance also exceeded consensus. Despite the positive outlook, shares initially declined in after-hours trading, likely due to lofty expectations and recent stock performance, though analysts expect the upward trend to resume.

Analysis

Broadcom reported robust fiscal Q2 2025 results, with revenue increasing 20% year-over-year to $15 billion and adjusted earnings per share growing 44% to $1.58, both figures narrowly surpassing LSEG consensus estimates. Adjusted EBITDA also demonstrated significant strength, rising 35% year-over-year to $10 billion, beating the FactSet consensus. Despite these positive results, the stock experienced an over 4% decline in after-hours trading, a reaction attributed to profit-taking following a substantial rally of nearly 78% since its April 4 low and results that, while strong, were not a significant blowout relative to elevated expectations. Fundamentally, the company's performance is solid, underpinned by its key artificial intelligence business where CEO Hock Tan anticipates sustained robust growth into fiscal 2026. Specifically, AI semiconductor revenue reached $4.4 billion, up 46% year-over-year, with AI networking revenue surging over 170% year-over-year and custom AI accelerator revenue showing double-digit growth. The infrastructure software segment, bolstered by the VMware acquisition, saw revenue grow 25% year-over-year to $6.6 billion, with gross margins expanding to 93% due to successful conversion of customers to subscription models. Broadcom returned over $7 billion to shareholders in the quarter, with $4.2 billion in share repurchases and $2.8 billion in dividends. Looking ahead, Broadcom issued strong Q3 2025 guidance, forecasting total revenue of approximately $15.8 billion (21% YoY growth) and AI revenue of $5.1 billion (60% YoY growth), both slightly ahead of consensus. While analysts raised their price target on the stock to $290 from $230, a 'hold-equivalent 2' rating was maintained, citing the recent significant stock appreciation and awaiting a more attractive entry point.

Key Decisions for Investors

• Investors should consider the post-earnings share price moderation as a potential point of interest, given Broadcom's solid Q2 performance, positive Q3 guidance exceeding consensus, and the strong multi-year growth trajectory projected for its AI segment.
• Closely monitor the sustained demand for Broadcom's custom AI accelerators and networking solutions from key hyperscale customers, as this remains the primary catalyst for future growth and underpins the CEO's optimistic outlook extending into fiscal 2026.
• Acknowledge the 'hold-equivalent' rating alongside a raised price target to $290, which suggests that while fundamental prospects are strong, the significant recent share appreciation warrants careful consideration of valuation, potentially favoring patience for consolidation or a more attractive entry point.
• Evaluate the ongoing success of the VMware integration and the strategic shift towards subscription-based revenues within the infrastructure software segment, as its continued growth and margin expansion are crucial for diversifying revenue and enhancing profitability.