Broadcom Rides on Strong AI Demand: What's the Path Ahead?

Broadcom AVGO is capitalizing on the AI wave, driven by soaring demand for its networking and custom AI chips. In the second quarter of fiscal 2025, the company reported 46% year-over-year growth in AI revenues to $4.4 billion, with AI networking alone surging more than 170%. This segment now accounts for 40% of Broadcom’s total AI revenues, underscoring the critical role networking plays in supporting massive AI workloads.

Riding this momentum, Broadcom expects its AI semiconductor revenues to hit $5.1 billion in the third quarter of fiscal 2025, representing a potential 60% year-over-year increase and marking its tenth consecutive quarter of AI growth.

Driving this surge is Broadcom’s Ethernet-based networking portfolio, which includes Tomahawk switches, Jericho routers and NICs. Technologies are now widely deployed by hyperscalers such as Google, Meta and Microsoft. Ethernet remains the preferred standard for its open and scalable architecture, allowing seamless scale-out and scale-up across AI data centers.

Broadcom has also started shipping its next-generation Tomahawk 6 Ethernet switch, capable of 102.4 Tbps. Designed specifically for AI-scale fabrics, Tomahawk 6 introduces innovations such as Cognitive Routing 2.0, co-packaged optics and support for massive XPU clusters. These features directly address the networking bottlenecks of high-performance AI systems.

The above factors suggest Broadcom is well-positioned to capture continued upside from AI demand. With its streak of AI-chip growth, transformative networking technology and robust market adoption, the company has a clear runway for future growth.

Broadcom Battles Rising Semiconductor Rivals

NVIDIA NVDA dominates the AI semiconductor landscape, offering unparalleled GPU performance and high-performance computing. NVIDIA’s DGX Cloud, CUDA software and AI frameworks are widely adopted across industries, driving scalable AI deployment. As enterprise AI demand surges, NVIDIA’s software and AI cloud solutions present another significant revenue driver.

Intel INTC is advancing its AI strategy with CPU and GPU architectures targeting edge and data center workloads. Intel’s 5N4Y roadmap targets process leadership by 2025, while the Xeon 6 “Sierra Forest” introduces efficient-core server chips for high-density AI tasks. Recent launches, including AI-optimized PC chips and the vPro platform with Core Ultra, mark Intel’s biggest architectural shift in decades, aiming to deliver scalable, power-efficient AI performance across devices and accelerate adoption across the broader ecosystem.

AVGO’s Price Performance, Valuation & Estimates

Shares of Broadcom have returned 18.8% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 15%.

AVGO YTD Price Return Performance

From a valuation perspective, AVGO appears overvalued, trading at a forward price-to-sales ratio of 18.11X, significantly higher than the industry average of 8.72X. The company carries a Value Score of F.

AVGO Forward 12-Month Price/Sales Ratio

The Zacks Consensus Estimate for third-quarter fiscal 2025 earnings is pegged at $1.66 per share, unchanged over the past 30 days and indicating 33.87% year-over-year growth.

The consensus mark for fiscal 2025 earnings is pegged at $6.64 per share, which increased a cent over the past 30 days. The earnings figure suggests 36.34% growth over the figure reported in fiscal 2024.

AVGO stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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