Broadcom (AVGO, Financial) shares fell by 3% following its Q2 report. The semiconductor leader, with a growing focus on AI, slightly beat EPS expectations. Revenue increased by 20% year-over-year to $15 billion, just above the prior guidance of $14.9 billion. Q3 revenue guidance was in-line, with a slight upside, but the results were less impressive compared to NVIDIA's (NVDA, Financial) report last week.
- Q2 semiconductor revenue rose 17% year-over-year to $8.4 billion, up from 11% growth in Q1. AI semiconductor revenue, the main growth driver, increased by 46% year-over-year to $4.4 billion, matching prior guidance. Q3 guidance for this metric was solid at $5.1 billion (+60% year-over-year) as hyperscale partners continue to invest.
- Custom AI accelerators grew double digits year-over-year, while AI networking soared over 170%, representing 40% of AI revenue. Broadcom's networking portfolio, including Tomahawk switches, Jericho routers, and NICs, drives success in AI clusters for hyperscale. The Tomahawk 6 enables clusters of over 100,000 AI accelerators in two tiers, enhancing performance with lower latency, higher bandwidth, and lower power.
- For XPUs or custom accelerators, Broadcom expects at least three customers to deploy 1 million AI-accelerated clusters each by 2027. Despite economic uncertainties, partners are doubling down on inference to monetize platforms, potentially accelerating XPU demand into late 2026. Broadcom anticipates its FY25 AI semi revenue growth rate to continue into FY26.
- Non-AI semiconductor revenue declined 4% year-over-year to $4 billion in Q2. However, Broadcom believes this is near the bottom, with broadband, enterprise networking, and service storage revenues up sequentially. Industrial and wireless segments were down, as expected, due to seasonality.
- Q2 infrastructure software revenue increased 25% year-over-year to $6.6 billion, slightly above prior guidance of $6.5 billion. Broadcom is successfully converting enterprise customers from perpetual vSphere to the full VCF software stack subscription.
The stock dip is likely due to the small Q2 beat, which was less impressive than Q1's upside. AI semiconductor revenue met expectations, unlike the prior quarter's beat. Non-AI semiconductors showed signs of nearing a bottom, but sentiment was high due to the stock's recent surge and NVIDIA's strong report, prompting investors to lock in profits.
