Broadcom further raised its expectations for the AI business after its latest financial report. The company expects that AI semiconductor revenue will reach approximately $115 billion by the fiscal year 2027 and further increase to about $230 billion in the fiscal year 2028. Despite the continued strong long-term outlook, the market is more concerned with the short-term guidance, and Broadcom's stock price declined after the release of the financial report.
Revenue continued to grow in the third fiscal quarter.
Broadcom reported revenue of $29.59 billion in its third fiscal quarter, a year-on-year increase of 86%, exceeding Wall Street's expectations. Adjusted earnings per share were $3.32. Its AI semiconductor revenue increased by 221% year-on-year, reaching $16.7 billion.
The company's CEO, Hock Tan, stated that the demand for custom AI accelerators and networking products remains strong. Broadcom expects that in the fourth fiscal quarter, AI, its semiconductor revenue will increase to $21.7 billion, a year-on-year increase of 236%.
- Third-quarter revenue: $29.59 billion
- Adjusted earnings per share: $3.32
- AI Semiconductor revenue: $16.7 billion
Short-term revenue guidance falls short of expectations
Despite the strong data related to AI, Broadcom's stock price did not rise after the financial report. AVGO closed at $367.24 on Wednesday, down 0.66% for the day, and then further fell to around $364.23 in after-hours trading.
One reason for the cautious market reaction is that the company's guidance for total revenue in the fourth fiscal quarter was slightly lower than the average expectations of analysts. Broadcom expects revenue in the fourth fiscal quarter to be around $34.8 billion, while the market's average expectation is $35.03 billion.
In addition, competition in the field of custom AI chips is also intensifying. Reports mention that Marvell recently reached a custom chip agreement with Google, and the market is continuously assessing whether large cloud service providers can maintain high levels of investment in AI infrastructure.
Order and software business expand in tandem
Broadcom stated that the company has a high level of visibility regarding the deployment of infrastructure for the future AI. According to Hock Tan, among the confirmed production capacity plans, Anthropic exceeds 10 gigawatts, OpenAI exceeds 5 gigawatts, and Meta is 3 gigawatts. The company's latest quarter's AI chip order volume has exceeded 30 billion US dollars.
In addition to chips, Broadcom's software business is also growing. In the third fiscal quarter, revenue from infrastructure software reached $8.75 billion, with quarterly free cash flow at $13.7 billion. A few days before the release of the financial report, Broadcom also launched VMware Private AI Cloud, VMware AI Factory, and AgentMinder, further expanding its product coverage in the AI infrastructure sector.
Next, the focus of the market will be on whether Broadcom can convert its current large AI order backlog into profit growth more quickly in order to meet the market's expectations for its valuation.
