Is Broadcom a Buy as AI Revenue Continues to Surge?
Broadcom (NASDAQ: AVGO) once again reported strong artificial intelligence (AI) revenue growth when it released its fiscal 2026 Q1 results this week. While the stock got a lift from the news, shares are still down year to date, as of this writing.
Let's take a closer look at Broadcom's results and prospects to see if the semiconductor stock is a buy.
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AI momentum continues for Broadcom
Broadcom continues to see strength in both its networking and custom AI chip businesses, as its total AI revenue climbed 106% year over year in fiscal Q1 to $8.4 billion, above its expectations. Its custom AI ASIC (application-specific integrated circuit) business saw revenue surge by 140%, while AI networking revenue climbed 60%. It expects its networking revenue growth to materially accelerate in Q2, led by its Tomahawk Ethernet switch and SerDes (Serializer/Deserializer) products.
For fiscal Q2, it is looking for its AI revenue to increase by 76% to $14.8 billion. Meanwhile, Broadcom said its five largest custom AI chip customers are progressing well, and that can generate more than $100 billion in just AI chip revenue in fiscal 2027.
Broadcom's overall revenue for the quarter jumped 29% year over year to $19.31 billion, while adjusted earnings per share (EPS) climbed 28% to $2.05. The results surpassed analyst expectations for adjusted EPS of $2.03 on revenue of $19.18 billion, as compiled by LSEG. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, rose by 30% year over year to $13.1 billion.
Total semiconductor solutions revenue increased by 52% year over year to $12.5 billion, as its non-AI chip revenue growth remains sluggish, up just 4% in the quarter. Infrastructure software revenue, meanwhile, edged up by 1% to $6.8 billion, led by a 13% increase in VMware revenue.
Gross margins, which have been a point of contention with investors, as its ASIC business does carry lower gross margins, came in at 77%, down from 79.1% a year ago. However, they are holding up well.
Looking ahead, Broadcom guided for fiscal Q2 revenue to grow by 47% to $22 billion. It is looking for gross margins to be flat sequentially. As noted, semiconductor revenue is expected to climb 76% to $14.8 billion, while infrastructure software revenue is projected to rise 9% to $7.2 billion.
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