Broadcom’s (AVGO) AI Revenue Jumps 44% as Hyperscalers are Signing Up

Stock (Symbol)

Broadcom (AVGO)

Stock Price

$162

Sector

Data is as of

Expected to Report

Company Description

Broadcom designs, develops and supplies a range of semiconductor and infrastructure software solutions.

It operates through two segments: semiconductor solutions and infrastructure software. Its semiconductor solutions segment includes semiconductor solution product lines, as well as its Internet protocol (IP) licensing.

It provides semiconductor solutions for managing the movement of data in data center, telecom, enterprise and embedded networking applications.

It also provides a variety of radio frequency (RF) semiconductor devices, wireless connectivity solutions and custom touch controllers for the wireless market.

Its infrastructure software segment includes its mainframe, distributed and cyber security solutions, and its fiber channel storage area networking (FC SAN) business.

Its mainframe software provides DevOps, AIOps, Security and Data Management Systems solutions. Source: Refinitiv

Sharek’s Take

Broadcom’s (AVGO) Artificial Intelligence (AI) revenue is growing rapidly. Last quarter, AI revenue jumped 77% year-over-year (yoy) as hyperscalers ramped up AI networking orders. AVGO currently works with with big hyperscale customers in making customer AI chips. The company is deeply engaged with two other hyperscalers to create their own customized AI accelerators. In addition, two additional hyperscalers have also selected Broadcom to develop custom accelerators. These “new four” are not included in AVGO’s long-term projections. Next quarter, AI revenue is expected to grow another 44% yoy. Note that for the rest of Broadcom’s semiconductor business—including wireless, networking, broadband, industrial, and server chips—the company did not provide specific figures, leaving the exact impact unclear. So AVGO is growing its big hyperscale AI clients from three to seven. That’s big news.

Broadcom is a semiconductor and software company that designs thousands of products for home connectivity, cloud data centers, and enterprise businesses. It is a conglomerate that was formed over 50 years of mergers and acquisitions including old-school tech companies AT&T/Bell Labs, Lucent, Hewlett-Packard and its semiconductor division, and younger industry leaders (including Broadcom, LSI, Broadcom Corporation, Brocade, CA Technologies and Symantec). The majority of AVGO’s silicon wafer manufacturing operations are designed in North America or Europe, then outsourced by the company to external foundries in Asia, such as Taiwan Semiconductor.

Broadcom’s method for building AI infrastructure is different, as its building a general product that fits everyone’s needs, with hardware from different manufacturers used in the datacenter:

• Broadcom feels it can make AI networks that are designed specifically for the customer that require less energy. Instead of using GPUs for AI, Broadcom utilizes application-specific integrated circuits, or ASICs, that use less energy.
• Broadcom refers to AI accelerators as XPUs instead of NVIDIA’s GPUs. Aspects os an XPU include:
  • compute (optimizing flow)
  • memory (the correct size, cooling, testing)
  • input/output (chiplets that match precision and ratio for workloads)
  • packaging (coded software to run like a machine)
• Within an AI server, there is essentially a network with 8 to 12 XPUs, ethernet devices, CPUs, and solid state hard drives. (much of this is manufactured by Broadcom already).

AVGO has two business segments:

• Semiconductor Solutions (sales up 11% last qtr, accounted for 55% of total sales):
  This segment offers digital and mixed signal products that use silicon wafers with computer memory. Products include routers, modems, set-top boxes, WiFi-enabled devices, Bluetooth devices, GPS systems, HDD and SSD storage, and motion control encoders. Its competitors include AMD, Cisco, GlobalFoundries, and Qualcomm.
  • Networking (sales +77% year-over-year)
    • Growth was driven by stronger AI networking shipments to hyperscalers.
  • Wireless (sales +0% year-over-year)
    • Flat YoY in last quarter, expected to remain stable next quarter.
  • Server/Storage (revenue declined -51% year-over-year)
    • Declined single-digits but is projected to grow by high single digits next quarter.
  • Broadband (sales increased year-over-year)
    • Rebounded with double-digit sequential growth in Q1 and similar growth expected in Q2.
  • Industrial (sales declined year-over-year)
• Infrastructure Software (sales up 47%, accounted for 45% of total sales):
  This division provides businesses with software to integrate, optimize and secure their operations, including Symantec software that protects organizations from cyber threats. In November 2023, Broadcom acquired VMware, which provides multi-cloud services for all software apps, virtual technology, and x86 server-based computing. The acquisition of VMware took Broadcom’s software segment from around 25% of company revenue to around 45 %.

AVGO stock has an Estimated Long-Term-Growth (LTG) Rate of 19%, but the P/E of 25 makes the stock overvalued by 13%, in my opinion. AVGO also pays a nice dividend of 2%, and management buys back stock. The company has a dividend policy of pacing 50% of the prior-year’s free cash flow to investors. Since 2016, AVGO’s dividend has grown around 20% a year. AVGO is part of the Growth Portfolio and Aggressive Growth Portfolio.

One Year Chart

This stock has a 25 P/E this quarter. The P/E was 40 last quarter as its gone from overvalued to undervalued (in my opinion).

The Est. LTG is 19%, down from 20% last qtr.

Qtrly profit growth was poor around a year ago as AVGO swallowed up the big VMware acquisition. Now profits are flowing at a good rate.

Earnings Table

• Growth was driven by the Infrastructure Software segment with +47% sales growth. Last qtr was the 1st qtr with recent acquisition Vmware’s revenue included in both qtrs.
• VMware shifted from one-time software purchases to a subscription model—so far, over 60% of customers have switched.
• Broadcom is also making a big push into AI-driven cloud computing, with 70% of their top 10,000 customers now using VMware Cloud Foundation (VCF).

Annual Profit Estimates increased this qtr. 

Qtrly Profit Estimates for the next 4 qtrs are 42%, 33%, 26%, and 16%. These are excellent numbers! For next qtr, analysts expect revenue to grow 25%.

Fair Value

My Fair Value on AVGO is a P/E of 32. The stock has a P/E of 25.

At $162 this quarter, the stock is 30% below my 2025 Fair Value of $211 a share.

Bottom Line

Broadcom (AVGO) has a great looking ten-year chart. Recent success made the shares go parabolic, but the stock has since digested its gains.

Broadcom offers customized AI solutions that big hyperscalers are liking. AI revenue was up a whopping 77% last qtr. In addition, more hyperscale business is coming. And the stock is a pretty good deal after the recent pullback.

AVGO moves up from 10th to 7th in the Growth Portfolio Power Rankings.

The stock jumps from 12th to 3rd in the Aggressive Growth Portfolio Power Rankings. 2025 upside has gone from -13% last qtr to +30% this qtr.

Power Rankings

7 of 29

Aggressive Growth Portfolio

3 of 13

Conservative Stock Portfolio

N/A