Broadcom's AI Revenue Expected to Surge 60% in 2025, Driven by Google's TPU v6 Chip

Morgan Stanley has released a research report indicating that Broadcom Inc. (AVGO.US) is expected to deliver second-quarter financial results that meet or slightly exceed market expectations. This optimistic outlook is driven by the strong demand for AI products, the stabilization of non-AI semiconductor businesses, and the continued growth of VMware's business. The firm maintains a "buy" rating on Broadcom with a target price of $250 per share.

According to Morgan Stanley, Broadcom's AI-related revenue remains robust, serving as the primary driver of its business growth. Google's TPU v6 3nm ASIC chip has begun mass production and is expected to significantly contribute to Broadcom's revenue for the remainder of the 2025 fiscal year and into the 2026 fiscal year. The firm predicts that this chip project will generate over $150 billion in revenue throughout its lifecycle, making it the world's most powerful custom XPU AI accelerator.

In the AI networking sector, Broadcom's Tomahawk 5 and Jericho 3 AI products continue to see strong demand. The next-generation 3nm process technology, Tomahawk 6 chip, is expected to begin mass production in the second half of 2025. Overall, driven by the sustained production of Google's TPU processors, the advancement of ASIC projects by Meta and ByteDance, and the stable demand for AI networking products, Broadcom's AI business revenue for the 2025 fiscal year is expected to reach $19 billion to $20 billion, representing a year-over-year growth of approximately 60%.

In the non-AI semiconductor business, as the industry's cyclical trends improve, the wireless sector is expected to see revenue growth, while enterprise, server/storage, and broadband segments show stable demand. In the software infrastructure business, VMware's strong software renewal capabilities, transitioning to high average selling price VCF stack solutions, and deepening cooperation with large enterprise customers continue to drive strong business momentum.

Morgan Stanley anticipates that Broadcom's second-quarter revenue, earnings, and free cash flow (FCF) will meet or slightly exceed market expectations, with order situations remaining stable. Based on the high revenue base in the second quarter, the firm expects third-quarter revenue to grow sequentially by 5% to 7%, reaching approximately $16.1 billion, surpassing market consensus. AI business revenue is expected to exceed $5 billion.

Overall, leveraging its leading position in the AI infrastructure sector, Broadcom is recognized as the second-largest AI semiconductor supplier, the largest custom chip AI ASIC supplier, and the leading supplier of cloud/AI network switching and routing chips. With its diversified terminal market layout and industry-leading gross margin, operating profit margin, and free cash flow margin, Morgan Stanley views Broadcom as its top pick in the semiconductor sector.