Can Growing Adoption of Tomahawk Ultra Boost Broadcom's AI Revenues?

Broadcom’s AVGO latest Tomahawk Ultra Ethernet switch is a key catalyst for its AI revenues. As the demand for AI and high-performance computing (HPC) infrastructure continues to soar, the company believes that growing adoption of this cutting-edge chip will significantly boost its AI revenues, which rallied 46% year over year in the second quarter of fiscal 2025.

As hyperscalers and enterprise customers seek high-bandwidth, low-latency interconnects to scale AI workloads efficiently, Tomahawk Ultra positions Broadcom to address this need with a flexible, standards-based solution.

Broadcom’s optimism lies in the technical superiority of Tomahawk Ultra, which delivers impressive performance, handling up to 51.2 terabits per second throughput, 77 billion packets per second and ultra-low latency of just 250 nanoseconds. These capabilities are critical for connecting thousands of GPUs and AI accelerators in large-scale training environments. Crucially, the chip supports up to 1,024 accelerator connections, giving it a significant edge over Nvidia’s NVLink.

This chip’s technical edge isn’t the only advantage. It is also pin-compatible with the previous generation (Tomahawk 5), allowing Broadcom’s customers to upgrade easily without redesigning systems. This ease of integration is driving faster adoption among leading hyperscalers and OEMs.

By integrating Tomahawk Ultra with Broadcom’s broader portfolio, including Jericho routers and custom AI chips, the company is positioning itself as a major AI infrastructure provider. These factors strongly suggest that the growing adoption of Tomahawk Ultra can meaningfully accelerate AVGO’s AI revenues.

Broadcom Faces Competition From AI Chip Rivals

NVIDIA NVDA leads the AI chip market with dominant GPU performance and a robust CUDA-NVLink ecosystem. NVIDIA’s strength lies in its vertically integrated architecture, where CUDA and NVLink deliver unmatched performance scalability and developer stickiness. Strong chip demand from cloud and internet giants is expected to keep boosting NVIDIA’s top-line growth.

Advanced Micro Devices AMD challenges Broadcom in AI and cloud infrastructure by supplying high-performance EPYC CPUs and Instinct GPUs to major hyperscalers like Microsoft, Meta and AWS. With growing demand for x86 processors and semi-custom chips, AMD is well-positioned to expand its AI footprint and challenge Broadcom across key hyperscaler and enterprise workloads. A robust 57% year-over-year jump in AI data center revenues further supports AMD’s momentum and growing edge.

AVGO’s Price Performance, Valuation & Estimates

Shares of Broadcom have returned 20.9% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 15.6%.

AVGO YTD Price Return Performance

From a valuation perspective, AVGO appears overvalued, trading at a forward price-to-sales ratio of 18.41X, significantly higher than the industry average of 8.75X. The company carries a Value Score of D.

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 by 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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