Broadcom’s AI Muscle to Be Put to the Test in Q2 Earnings Report

Eyes on Custom Silicon, VMware Integration, and Tariff Impacts as Stock Trades Near Record Highs

Broadcom (AVGO) will report its fiscal second-quarter 2025 earnings after the bell on Thursday, June 5. Expectations are sky-high as the semiconductor and infrastructure software giant rides an AI-driven surge in investor enthusiasm. With shares up more than 85% year-to-date and the company’s market cap now hovering near the $1 trillion threshold, Broadcom’s earnings release comes at a critical moment—not just for the stock, but for broader sentiment around AI infrastructure plays.

The company enters earnings with significant momentum following the release of its next-generation Tomahawk 6 data center switch chip, which boasts 102.4 Tbps of Ethernet switching capacity. This innovation is seen as a potential game-changer in the world of AI networking, with open standards that could undercut Nvidia’s proprietary models. It adds fuel to investor hopes that Broadcom will remain a core beneficiary of AI infrastructure spend by hyperscalers like Google and Meta, especially through its application-specific integrated circuits (ASICs) and high-speed networking components.

Consensus estimates for Q2 call for revenue of $14.97 billion, up nearly 20% year-over-year, and adjusted EPS of $1.57, up more than 40% from the prior-year quarter. These forecasts reflect Broadcom’s growing exposure to the AI buildout, now expected to comprise roughly 30% of full-year revenue. Investors will also be watching for updates on its integration of VMware, which should contribute approximately $6.5 billion to Q2 revenue and improve software margins through the transition to a subscription model.

Broadcom’s strong Q1 results laid the groundwork for these lofty expectations. The company delivered $14.92 billion in revenue and adjusted EPS of $1.60, beating consensus estimates by 2.2% and 6.1% respectively. AI revenue was the standout, rising ~77% year-over-year to $4.1 billion, with management guiding for a 44% YoY increase in Q2. With the AI serviceable available market (SAM) pegged at $60–90 billion by FY27, Broadcom is positioning itself as a go-to partner for hyperscalers seeking cost-effective, power-efficient AI compute through custom XPUs.

One key question for Thursday’s call is how Broadcom’s custom ASIC pipeline is tracking. Analysts, including those at Citi and Mizuho, expect strength from Google’s AI chip program to be a meaningful driver. In Q1, management indicated that four additional hyperscalers were "deeply engaged" in ASIC development, suggesting the total opportunity could exceed the current $75 billion SAM midpoint.

The VMware acquisition also remains in focus. As Broadcom converts customers from perpetual licenses to VMware Cloud Foundation subscriptions, investors will be looking for signs that margin expansion is materializing. With over 60% of customers already on subscription and interest growing for on-premise AI workloads due to data sovereignty concerns, VMware could offer a meaningful software tailwind—particularly as AI enters enterprise IT planning cycles.

However, risks are looming. Analysts are increasingly attentive to Broadcom’s exposure to Apple, which made up around $2.2 billion of revenue last quarter. With iPhone volumes already stagnant and potential new tariffs set to hit U.S.-bound consumer electronics at the end of June, investors will want clarity on whether Apple may pass costs on to suppliers like Broadcom or reduce component orders. The potential impact of tariffs—especially as the Trump administration retools its trade approach—is an underappreciated risk heading into the print.

Adding complexity to the macro backdrop was the rescission of the so-called “AI Diffusion Rule” last month, which had previously restricted certain AI chip exports. The rule’s reversal is a bullish signal for Broadcom, which generates over half its revenue from Asia-Pacific markets. Its removal clears a regulatory overhang and reinforces Broadcom’s global growth story.

On the valuation front, AVGO currently trades at roughly 30x forward earnings and nearly 40x EV/EBITDA—among the highest in its peer group. That premium reflects a market willing to pay up for exposure to AI and software infrastructure growth, but also raises the bar for execution. Any stumble on guidance or signs of slowing hyperscaler spending could trigger a sharp reversal in the stock, particularly after such a strong run.

Traders are preparing for volatility, with the options market pricing in a 6%–7% move in either direction following the report. That’s notably above Broadcom’s historical earnings week average of ~5%, a sign of heightened anticipation.

Investor Cheat Sheet: Five Key Areas to Watch on the Call

AI Revenue Trajectory: Look for confirmation of ~$4.4B in Q2 AI revenue and commentary on hyperscaler pipeline strength.

Custom ASIC Momentum: Progress with Google and other cloud giants could signal upside to 2H25 expectations.

VMware Integration: Watch for updates on the subscription model transition and software gross margins.

Apple Exposure & Tariffs: Management’s take on Apple volume trends and tariff risks will be crucial.

Forward Guidance: Investors will want to see top-line guidance above the ~$14.9B mark to justify current valuation levels. With Broadcom at the epicenter of several powerful secular themes—AI infrastructure, custom silicon, and enterprise software—Thursday’s earnings report is likely to be a market-moving event. A beat-and-raise scenario could validate the recent run and extend gains, while any hint of softness could be magnified by the stock’s premium multiple. Either way, all eyes will be on AVGO after the bell.