Buy Broadcom Stock After AI Fuels Record Q1 Sales & Positive Guidance?

AI chip leader Broadcom AVGO is emerging as a standout in a volatile trading week marked by Middle East tensions, rising oil prices, and private credit worries weighing on financial stocks.

Exceeding expectations for its fiscal first quarter on Wednesday evening, Broadcom stock spiked over 4% in today’s trading session, while the broader indexes declined, led by the Dow Jones' -1.61% drop.

AI Chip Demand Drives Broadcom’s Record Q1 Sales

Highlighting the accelerating adoption of its custom AI chips and AI networking components, Broadcom’s Q1 sales surged 29% year over year to a record $19.31 billion and edged estimates of $19.28 billion. The robust growth was driven by AI semiconductor revenue, which grew 106% YoY to $8.4 billion. On the bottom line, Q1 EPS spiked 28% to $2.05, topping expectations of $2.03.

VMware’s Notable Contribution

Best known for technologies that allow multiple operating systems and applications to run on a single physical server, Broadcom’s acquisition of VMware has continued to pay off. Specializing in virtualization and cloud computing, VMware was acquired by Broadcom in 2023.

What caught Wall Street’s attention is that with markets on edge about how AI could potentially disrupt software companies, Broadcom's comments centered on how AI is actually driving VMware’s growth and that the acquisition is fitting into its long-term strategy. Notably, Broadcom highlighted that VMware saw 13% growth during Q1, with $9.2 billion in total contract value.

Broadcom emphasized that VMware’s platform is essential for enterprises adopting private and hybrid cloud environments, describing the combined company as well-positioned to help customers build more secure and resilient infrastructure.

Favorable Guidance & Stock Buybacks

While Broadcom’s top and bottom line beats weren’t eye-catching, the company’s guidance was well-received, with management expecting AI chip sales to double in Q2 as well, reinforcing confidence in sustained growth.

Broadcom expects AI semiconductor revenue for Q2 to increase 140% YoY to $10.7 billion. Overall, Broadcom guided Q2 sales at $22 billion, which would reflect 47% growth and came in well above Wall Street’s expectations of $20.44 billion (Current Qtr below).

Further fueling investor sentiment, Broadcom announced its board of directors has authorized an additional $10 billion share repurchase program effective through the end of calendar year.

Bottom Line

Broadcom’s latest results and commentary created a setup where the stock looks more attractive after Q1 because the company delivered strong performance, clear AI-driven growth visibility, and supportive capital-return actions. Broadcom stock currently lands a Zacks Rank #3 (Hold), but a buy rating could be on the way as a meaningful uptick in FY26 EPS revisions looks likely after its strong Q1 report and positive guidance. 

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

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