Broadcom's Record Revenue Surge Amid AI Growth Deceleration Sparks Mixed Investor Sentiment

Broadcom reported a record-high revenue for its fiscal second quarter, reaching $150 billion, a 20% increase from the previous year and surpassing expectations. The adjusted earnings per share stood at $1.58, marking a 43.6% year-over-year growth, also exceeding forecasts.

The company experienced a 46% growth in AI revenue during the quarter, a noticeable deceleration compared to the 77% increase from the previous quarter. The projection for the third quarter estimates revenues of approximately $158 billion, reflecting a 21% year-over-year rise. Expectations for AI revenue in the third quarter are set at $51 billion, indicating sustained growth over the past ten consecutive quarters but still falling short of the most optimistic analyst predictions.

Hock Tan, Broadcom's CEO, emphasized that the growth of the AI chip sector remains the primary catalyst for the company's performance. Broadcom has introduced the Tomahawk 6, a high-performance data center switch chip designed to meet the requirements of AI processor clusters.

Despite impressive figures, the current quarter's guidance did not align with the most bullish expectations, which can be interpreted as slightly dampening the enthusiasm around AI-driven revenue streams. This outlook might signal that the investment frenzy in AI computational power is not as vigorous as some investors had anticipated.

Broadcom's engagement in AI includes its work on custom ASICs and Ethernet networking components and positions it as a significant supplier of data center infrastructure. The ASIC segment encompasses various types, such as TPUs and NPUs, distinguishing them from the GPU segment comprising NVIDIA and AMD. Industry analysts suggest that Broadcom's major ASIC clients include Google and Meta.

Infrastructural challenges across Broadcom's non-AI semiconductor business emerged this quarter, where revenues fell by 5%, amounting to $40 billion. The recovery pace outside of AI-driven markets remains slow, influenced by seasonal industrial demand downturns.

Looking forward, Broadcom anticipates third-quarter revenue to be around $158 billion, with semiconductor solutions contributing roughly $91 billion and infrastructure software accounting for about $67 billion. The projected adjusted EBITDA aligns with 66% of the income.

The market reaction to Broadcom's earnings saw its stock decrease by 0.44%, with further declines of approximately 4% after trading hours, reflecting mixed investor sentiment regarding the operational outlook despite robust financial results.