Broadcom's AI Business Drives 20% Revenue Surge, Citigroup Raises Target Price 3%

Citigroup has raised its target price for Broadcom Inc. (AVGO.US) from $276 to $285 while maintaining its "buy" rating. This adjustment follows the release of Broadcom's second-quarter financial report, which showed a mixed performance overall. While the company's profit margins faced pressure, its AI-related business segment demonstrated robust growth.

The financial report indicated that Broadcom's AI business is experiencing strong momentum, driven by the increasing market demand for AI technologies. This segment has become a core engine for the company's revenue growth. The report highlighted that Broadcom's total revenue for the second quarter of the 2025 fiscal year reached $150 billion, a 20% year-over-year increase. This growth was fueled by strong AI chip sales and the integration of VMware's business, which contributed to an adjusted EBITDA of $100 billion, a 35% year-over-year increase, with a profit margin of 67%.

AI-related business revenue for the second quarter surged by 46% year-over-year, reaching $44 billion. This growth was primarily driven by the high demand for AI network solutions. Management expects this growth trend to continue into the third quarter, with AI chip revenue projected to exceed $51 billion, supported by significant capital investments from large-scale customers.

Looking ahead to the next quarter, Broadcom's performance guidance for the third quarter of the 2025 fiscal year indicates expected revenue of approximately $158 billion. The adjusted EBITDA profit margin is projected to remain above 66%, slightly lower than the current quarter. However, concerns have been raised about the company's profit margin outlook. Analysts note that the increasing proportion of semiconductor sales in total revenue is putting pressure on overall profitability. In response, management has adjusted performance guidance, suggesting a potential slight narrowing of profit margins in the short term.