Broadcom's AI chip revenue surges 143% as $30B order book builds

Broadcom's AI semiconductor business is on pace to exceed $16 billion in quarterly revenue as hyperscaler demand for custom accelerators and networking silicon shows no signs of slowing.

Broadcom's custom AI accelerator and networking chip business is accelerating faster than Wall Street expected, with AI semiconductor revenue surging 143% year over year to $10.8 billion in the fiscal second quarter.

"We are seeing hyperscalers commit to multi-generational custom chip programs, which gives us unprecedented revenue visibility," Chief Executive Officer Hock Tan said on the earnings call.

Semiconductor Solutions revenue hit a record $15.01 billion, up 79% from a year earlier and accounting for 68% of total company revenue. AI networking products — including Tomahawk Ethernet switches and Jericho fabric solutions — contributed nearly 40% of AI chip revenue. Quarterly AI semiconductor bookings exceeded $30 billion, representing a book-to-bill ratio of roughly 3x.

Broadcom maintained its $100 billion fiscal 2027 AI revenue target, and remaining performance obligations reached approximately $164.6 billion, including a new long-term custom AI accelerator contract. The company's operating margin hit a record 67%, with free cash flow of $10.3 billion. Shares trade at roughly 22x forward earnings, a discount to Nvidia's 35x multiple, reflecting the market's uncertainty about whether hyperscaler AI spending can sustain its current trajectory.

Custom Chips and Networking Create a Dual Growth Engine

Broadcom's strategy of supplying both custom AI accelerators — internally called XPUs — and the networking silicon that connects them in large clusters is giving it a wider footprint inside hyperscaler data centers than pure-play GPU vendors. The company's AI networking portfolio spans Tomahawk Ethernet switches capable of 100-terabit throughput, Jericho fabric processors, high-speed SerDes (serializer-deserializer) interfaces, digital signal processors and co-packaged optics.

Networking now accounts for nearly 40% of Broadcom's AI revenue, and the company expects that share to reach 30% of total AI chip revenue as data center scale-out architectures require more interconnect silicon per accelerator. For context, Nvidia's proprietary NVLink and InfiniBand technologies are attached to more than 90% of its GPU deployments, creating a direct competitive overlap with Broadcom's Ethernet-based approach.

The company is also benefiting from VMware's transition to a subscription model. The software segment is guiding for 31% growth at a 79% margin, adding a high-margin revenue stream that helps fund the semiconductor business's heavy R&D spending.

Competition Intensifies as Nvidia and AMD Expand Their Silicon Ambitions

Broadcom faces mounting competitive pressure from Nvidia and Advanced Micro Devices, both of which are expanding beyond their core GPU businesses into networking and custom silicon. Nvidia's Spectrum-X Ethernet platform, BlueField data processing units and upcoming Vera CPU reduce hyperscalers' need for third-party networking components. AMD, meanwhile, is deepening relationships with Meta and other large customers through multi-generational Instinct GPU deployments and its Helios rack-scale systems that integrate GPUs with EPYC Venice CPUs.

The competitive stakes are high. Nvidia's data center revenue alone exceeded $100 billion in its most recent fiscal year, dwarfing Broadcom's semiconductor business. But Broadcom's custom chip model — where hyperscalers like Alphabet and Meta design their own accelerator architectures and Broadcom provides the silicon implementation and networking — offers a different value proposition. Hyperscalers gain more control over their AI infrastructure while avoiding the margin markup on Nvidia's integrated systems.

For investors, the key question is whether Broadcom can sustain its growth trajectory as Nvidia and AMD encroach on its networking turf. The company's $30 billion quarterly AI order book and $164.6 billion in remaining performance obligations suggest customers are locking in supply years in advance. Broadcom expects AI revenue to accelerate to $16 billion in the fiscal third quarter, representing growth of more than 200% year over year, with total Semiconductor Solutions revenue forecast at approximately $20.5 billion.

This article is for informational purposes only and does not constitute investment advice.