AVGO's Semiconductor Sales Growth Picks Up: A Sign of More Upside?

Broadcom’s AVGO Semiconductor revenues are benefiting from strong demand for XPUs, which are a type of application-specific integrated circuit (ASIC) necessary to train Generative AI (Gen AI) models. Semiconductor solutions revenues (57.5% of net revenues) totaled $9.17 billion, up 26% year over year in the third quarter of fiscal 2025. The uptick was driven by the strong AI revenues, which surged 63% year over year to $5.2 billion. XPUs accounted for 65% of AI revenues in the reported quarter.

Consolidated backlog hit $110 billion, and Broadcom has secured more than $10 billion of orders for AI racks based on XPU demand. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 5 and 6 products, as well as the Jericho 4 Ethernet fabric router.

In June, AVGO announced the shipment of its Tomahawk 6, the world’s first 102.4 Terabits/sec Ethernet switch. In mid-July, AVGO announced shipping of Tomahawk Ultra, its Ethernet switch, which achieves 250ns switch latency at full 51.2 Tbps throughput. Tomahawk Ultra delivers line-rate switching performance even at minimum packet sizes of 64 bytes, supporting up to 77 billion packets per second. Jericho4 Ethernet fabric router has the ability to interconnect more than one million XPUs across multiple data centers. 

AVGO now expects fourth-quarter fiscal 2025 AI revenues to jump 66% year over year to $6.2 billion, driven by these factors. Semiconductor revenues are anticipated to grow 30% year over year to $10.7 billion. The Zacks Consensus Estimate for Semiconductor sales is pegged at $10.44 billion, indicating 27% growth from the figure reported in the year-ago quarter.

AVGO Faces Tough Competition in the Semiconductor Market

Broadcom is a major player in the semiconductor market, but is facing stiff competition from NVIDIA NVDA and Advanced Micro Devices AMD.

NVIDIA is benefiting from the strong growth of AI and high-performance computing (HPC). The growing demand for Gen AI and large language models using GPUs based on NVIDIA’s Hopper and Blackwell architectures is aiding data center revenues. NVIDIA’s Blackwell Ultra GPUs, set to launch later in 2025, are expected to deliver up to 25 times the token throughput for AI inference compared to Hopper 100.

AMD’s prospects are driven by strong demand for Instinct accelerators. The launch of the Instinct MI350 series that supports deployments powered by AMD CPUs, GPUs and NICs has strengthened AMD’s system-level capabilities. MI300 and MI325 gained adoption in the reported quarter, as seven of the top 10 model builders and AI companies are currently using Instinct. Oracle is building a 27,000-plus node AI cluster combining MI355X accelerators, fifth-gen EPYC Turin CPUs and Pollara 400 SmartNICs.

AVGO’s Share Price Performance, Valuation & Estimates

Broadcom shares have appreciated 59% year to date, outperforming the broader Zacks Computer and Technology sector’s return of 16.8%.

AVGO Stock’s Performance

The AVGO stock is trading at a premium, with a forward 12-month price/earnings of 45.57X compared with the broader sector’s 28.27X. Broadcom has a Value Score of D.

AVGO Stock’s Valuation

The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $6.71 per share, up by a dime over the past 30 days, suggesting 37.8% growth from fiscal 2024’s reported figure.
 

Broadcom Inc. Price and Consensus

Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote

Broadcom 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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