There Are 16 Billion Reasons to Pay Attention to Broadcom Earnings on Sept. 2
Key Points
Broadcom has been a key partner in helping Alphabet create its custom AI chips.
Alphabet's expanded relationship with Marvell has weighed on Broadcom's stock this year.
Management has projected $16 billion in AI chip sales when Broadcom reports earnings this week.
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Broadcom (NASDAQ:AVGO) has been a disappointment for investors so far this year -- the stock is up 6%, but that's only half the performance of the S&P 500, which is up 12% year to date.
However, the semiconductor maker is reporting earnings for its fiscal third quarter after the market close on Sept. 2. And as management previously issued guidance for AI semiconductor revenue to grow more than 200% from a year ago to reach $16 billion, there are plenty of reasons for investors to be paying close attention to Broadcom stock this week.
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About Broadcom stock
Broadcom is a chipmaker, but it operates in a different lane from Advanced Micro Devices and Nvidia. It designs chips known as application-specific integrated circuits (ASICs) that are customized for Broadcom's customers, so while they aren't as versatile as Nvidia's top-of-the-line chips, they perform the functions its customers require so that they can be made less expensively.
Image source: Getty Images.
One of Broadcom's key customers is Alphabet, with whom Broadcom has worked over the last decade to create Google's Tensor Processing Units (TPUs), as an alternative to Nvidia's chips. Alphabet has been using TPUs in its own infrastructure, and it has begun selling TPU systems to third-party customers.
But here's also the problem for Broadcom. Alphabet and Marvell Technology recently announced a deal in which Marvell issued a warrant that gives Google the right to buy up to 58.9 million Marvell shares at $206.58 per share, or about $12.2 billion. Marvell said in a filing with the Securities and Exchange Commission that the agreement includes products that "attach to the (TPU) ecosystem" and is tied to milestones in its commercial relationship to help Google meet demand for its custom chips.
The filing follows an April report outlining a deal between Marvell and Google for AI workloads, including a TPU and a memory processing unit.
So naturally, there's concern that Alphabet's decision to expand its TPU business through Marvell will hurt Broadcom. Broadcom's stock fell sharply in April on news of the report. Marvell stock, meanwhile, is up 147% this year.
Morningstar analyst William Kerwin told Reuters that the deal is a "big win" for Marvell, but should be seen as Alphabet expanding its network of chipmaking partners "rather than a competitive displacement of Broadcom."
What to look for when Broadcom reports earnings
It's not like Broadcom has been doing poorly this year. In fact, business has been strong for the chipmaker. Revenue in the fiscal second quarter (ending May 3) was $22.18 billion, up 48% from a year ago. Net income was $9.31 billion, up 88%, and earnings of $1.91 per share were up 85% from the second quarter of 2025.
"Broadcom achieved record revenue, operating profit, and free cash flow in Q2 driven by accelerating growth in AI semiconductor revenue and strong operating leverage," CEO Hock Tan said. "Q2 semiconductor revenue from AI of $10.8 billion grew 143% year-over-year, above our forecast, driven by increasing demand for custom AI accelerators and AI networking.
"The momentum continues, and in Q3 we expect semiconductor revenue from AI to grow over 200% year-over-year to $16 billion," he said.
If Broadcom can hit that number -- $16 billion in semiconductor revenue with 200% growth -- then it would go a long way in easing investors' concerns about Marvell. Alphabet has deep pockets, having recently increased its projected capital expenditures this year from $185 billion to $200 billion, and that doesn't appear to be slowing down anytime soon.
Hitting or exceeding $16 billion in semiconductor revenue would show that demand for Broadcom's custom AI accelerators and networking products remains strong, even as Alphabet expands its relationship with Marvell. And if management issues guidance for continued strong growth in Q4, then the stock's year-to-date underperformance could be a golden opportunity to accumulate shares.
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Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.
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