AI Boom Broadcom’s Rocket Ride?

Broadcom, a significant player in the semiconductor industry, has once again demonstrated the power of artificial intelligence (AI) with its latest financial results. The company’s fiscal Q1 2026 report, released this week, revealed a substantial surge in AI-related revenue. Despite this positive news, the company’s stock performance year-to-date has been somewhat muted, prompting investors to question whether now is the right time to buy.

A closer examination of Broadcom’s performance and future prospects is warranted to determine the investment potential of this semiconductor giant.

The company is experiencing strong momentum in both its networking and custom AI chip divisions. Total AI revenue for fiscal Q1 soared by an impressive 106% year-on-year, reaching $8.4 billion, exceeding initial company forecasts. The custom AI ASIC (application-specific integrated circuit) business was a standout performer, with revenue rocketing by 140%. AI networking revenue also saw significant growth, climbing by 60%. Broadcom anticipates that its networking revenue growth will accelerate further in Q2, driven by the success of its Tomahawk Ethernet switch and SerDes (Serializer/Deserializer) product lines.

For the upcoming fiscal Q2, Broadcom is projecting a further increase in AI revenue, estimating a rise of 76% to $14.8 billion. The company highlighted the progress of its five largest custom AI chip clients, forecasting that these partnerships alone could generate over $100 billion in AI chip revenue in fiscal year 2027.

Broadcom’s overall financial performance for the quarter was robust. Total revenue increased by 29% year-on-year to $19.31 billion, while adjusted earnings per share (EPS) rose by 28% to $2.05. These results surpassed analyst expectations, which had predicted adjusted EPS of $2.03 on revenue of $19.18 billion, according to data compiled by LSEG. Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) also saw substantial growth, increasing by 30% year-on-year to $13.1 billion.

A breakdown of revenue streams reveals that total semiconductor solutions revenue experienced a significant increase of 52% year-on-year, reaching $12.5 billion. However, non-AI chip revenue growth remained relatively slow, increasing by only 4% during the quarter. Infrastructure software revenue saw a more modest increase of 1%, reaching $6.8 billion, driven primarily by a 13% increase in VMware revenue.

Gross margins, an area of investor focus due to the lower margins typically associated with the ASIC business, remained relatively stable at 77%, a slight decrease from 79.1% in the previous year.

Looking ahead, Broadcom has provided guidance for fiscal Q2, projecting revenue growth of 47% to $22 billion. The company expects gross margins to remain consistent with the previous quarter. As previously mentioned, semiconductor revenue is forecast to increase by 76% to $14.8 billion, while infrastructure software revenue is projected to grow by 9% to $7.2 billion.