Broadcom Earnings: AI Is Now More than a Quarter of Total Revenue

Key Morningstar Metrics for Broadcom

• Fair Value Estimate: $200.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Broadcom’s Earnings

Broadcom’s AVGO fiscal first quarter beat management guidance. Revenue rose 25% year over year and 6% sequentially to $14.9 billion, with artificial intelligence revenue rising roughly 15% sequentially to $4.1 billion. Guidance implies flat sequential revenue, with 7% sequential growth in AI revenue.

Why it matters: AI chip sales and VMware continue to overwhelmingly drive Broadcom’s results, and AI revenue and guidance again surpassed our expectations. AI revenue is now more than a fourth of total revenue and roughly half of chip revenue. VMware is more than a fourth of revenue.

• Broadcom announced two new AI accelerator customers, on top of its five already at different stages of development. Management reiterated a $60 billion-$90 billion serviceable addressable market for its three first customers in 2027, of which we expect it to capture roughly 70% share.
• Broadcom’s non-AI chip markets remain cyclically soft, and we have pushed out our rebound expectations. Still, these markets are a diminishing minority driver of results, and these cyclical downturns don’t materially affect our valuation.

The bottom line: We raise our fair value estimate for Broadcom to $200 per share from $190 on a higher AI chip revenue forecast. We also raise our Uncertainty Rating to High, stemming from the increasing concentration of AI as a driver of results.

• Shares rose about 15% after hours, due to higher AI guidance and optimistic accelerator customer commentary. We now see shares as fairly valued.
• We are conservative on the midpoint of management’s SAM, given uncertainty regarding the cadence of chip customer spending. We model toward the lower end of the SAM, but have raised our forecast for 2027 AI revenue, now implying roughly 55% growth over the next three years.