Broadcom's Q2 Revenue Surges 20% on AI, Cloud Growth

Broadcom Inc. (AVGO.US), a prominent semiconductor company, released its second-quarter financial results, showcasing a 20% year-over-year increase in revenue to $150 billion, slightly surpassing analyst expectations of $149.6 billion. The company's adjusted net income rose by 44% to $77.9 billion, with earnings per share at $1.58, exceeding the average analyst estimate of $1.56. The semiconductor solutions business, which serves data centers and networks, reported a 17% year-over-year revenue growth to $84.1 billion, outperforming the average analyst estimate of $83.9 billion. This growth was driven by the expansion of Broadcom's cloud computing business, VMware, which was acquired in 2023.

Broadcom's AI-related business also experienced significant growth, with revenue increasing by 46% year-over-year to $44 billion. However, this growth rate represents a slowdown from the 77% year-over-year increase reported in the first quarter. CEO Hock Tan attributed the strong performance to increased demand for network equipment. Despite the robust second-quarter results, Broadcom's guidance for the third quarter fell short of the most optimistic analyst expectations. The company projected third-quarter revenue to be $158 billion, a 21% year-over-year increase, which is slightly above the average analyst estimate of $157.2 billion. However, this figure is $10 billion lower than some of the most optimistic forecasts. Additionally, Broadcom expects AI-related revenue to reach $51 billion in the third quarter, surpassing the average analyst estimate of $47.9 billion but falling short of some estimates that reached as high as $52.9 billion.

Broadcom, like NVIDIA, is seen as a major beneficiary of the surge in AI spending, with data centers relying on its custom chips and network components to handle AI computational workloads. Since Broadcom reported its first-quarter results in March, its stock price has risen by over 30%, reaching a market capitalization of $1.2 trillion. Much of this gain occurred in the past month, driven by market expectations of continued substantial AI device spending in the coming months. However, even with the strong second-quarter results, investors were left underwhelmed, as the third-quarter guidance was seen as lackluster, suggesting that the AI spending boom may not be as robust as some investors had anticipated.