Broadcom’s CEO Hock Tan announced a strong second-quarter revenue forecast during an earnings call, easing investor concerns about AI chip demand. The company anticipates revenue of approximately $14.90 billion, higher than the estimated $14.76 billion.
Broadcom beats earnings estimates as AI business accelerates
Broadcom is experiencing high demand for its custom artificial intelligence chips from cloud computing companies seeking alternatives to Nvidia’s expensive processors as they expand their AI infrastructure. Tan expects revenue of $4.4 billion in AI semiconductors for the second quarter, driven by investments from hyperscale customers in custom AI chips for data centers.
Analysts predict that Broadcom will additionally benefit as large tech companies transition from off-the-shelf chips to in-house processors to meet increasingly complex AI requirements. Tan stated that Broadcom has four new hyperscale customers engaged in creating custom chips, in addition to the three existing customers using its processors. These four customers were not included in the company’s projected revenue opportunity of $60 billion to $90 billion by 2027.
Broadcom reported first-quarter revenue of $14.92 billion, exceeding estimates of $14.61 billion. The AI revenue soared over 77% to $4.1 billion, reflecting strong adoption of its custom-made accelerators. Revenue in the infrastructure software segment also increased by more than 47% to $6.70 billion, surpassing analyst expectations of $6.49 billion.
Adjusted earnings per share rose 45% year over year to $1.60, above the $1.49 expected, while adjusted EBITDA grew 41% to $10.08 billion, exceeding the FactSet consensus estimate of $9.66 billion. Following these results, Broadcom shares surged 14% in extended trading after initially closing down 6%. The stock’s rise reflects confidence in its quarterly results, which alleviated anxiety about a possible slowdown in AI semiconductor spending.
In the earnings call, Tan highlighted engagement with two additional hyperscaler clients aimed at developing custom accelerators for next-generation AI models, adding to the existing customer base that includes Alphabet, Meta Platforms, and ByteDance. This diversification in customer engagements is viewed positively compared to competitors like Nvidia, which primarily offers configurable off-the-shelf GPUs.
Broadcom is currently testing Intel’s advanced 18A manufacturing process for potential future chip designs. Analysts noted that Broadcom’s position in the AI market is more diversified due to its multiple AI Application-Specific Integrated Circuit (ASIC) customers, which are tailored for specific tasks to enhance performance and energy efficiency.
Expectations and future outlook
For the second quarter of fiscal 2025, Broadcom expects a revenue increase of 19% from the previous year to $14.9 billion, surpassing Street estimates of $14.7 billion. The company anticipates AI revenue will increase sequentially to $4.4 billion, while legacy semiconductor business revenue is expected to remain relatively flat. Software revenue is projected to rise 23% year over year to $6.5 billion.
Management estimates adjusted EBITDA will reach approximately 66% of projected revenue, around $9.83 billion, exceeding the consensus estimate of $9.5 billion. This strong financial outlook coincides with increased R&D investments aimed at developing next-generation accelerators and enhancing the capacity of its Tomahawk 5 high bandwidth network switches, aligning with the roadmap of its hyperscale clients.
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