Broadcom shares are down 25% — can its AI outlook restart the rally?

Nvidia has confirmed that demand for AI computing remains exceptionally strong. Broadcom now has to show that the spending boom is expanding beyond Nvidia’s general-purpose GPUs.

Broadcom will report its fiscal third-quarter results after the US market closes on Wednesday. Wall Street expects revenue of approximately US$29.4 billion, up about 84% from a year earlier, and adjusted earnings near US$3.22–US$3.24 per share.

The more important number is Broadcom’s AI semiconductor revenue. Management expects it to reach US$16 billion, up from US$10.8 billion in the previous quarter and more than triple the US$5.2 billion recorded a year earlier.

Broadcom is benefiting from two areas where hyperscalers are spending heavily: custom AI accelerators designed for their own workloads and the networking chips required to connect enormous computing clusters. A strong result would support the view that the AI infrastructure boom is creating several major semiconductor markets alongside Nvidia.

For Australian traders, Broadcom’s result will be another test for the Nasdaq 100 and the wider semiconductor sector. The shares have fallen roughly 25% from their June high, despite expectations for extraordinary revenue growth. Investors now want evidence that customer deployments, margins and the company’s long-term AI forecast can support another re-rating.

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Broadcom enters the results with one of the strongest growth forecasts among large US technology companies.

Broadcom’s previous result showed the speed of the expansion. Fiscal second-quarter revenue increased 48% to US$22.2 billion, while AI semiconductor revenue climbed 143% to US$10.8 billion. Free cash flow reached US$10.3 billion, equivalent to 46% of revenue.

Yet Broadcom shares fell more than 12% after the release. Management reiterated its forecast for more than US$100 billion in AI chip revenue during fiscal 2027, but investors had expected an upgrade.

Meeting the US$29.4 billion revenue forecast may not be enough if Broadcom leaves its longer-term AI outlook unchanged or signals that customer deployments are progressing more slowly than expected.

Contracts for Difference (CFDs) allow eligible traders to take a long or short view on selected US shares and indices without owning the underlying asset. A long position may suit a view that Broadcom will raise its AI outlook, while a short position may suit a view that elevated expectations leave the shares vulnerable to another post-earnings decline.

Nvidia sells powerful GPU platforms that can handle a wide range of AI training and inference workloads. Broadcom works with large customers to design specialised accelerators around their own models, data centres and software.

These custom processors are often called XPUs or application-specific integrated circuits. They can offer better performance or lower costs for a tightly defined workload, although they are less flexible than Nvidia’s general-purpose platforms.

Broadcom says it now has six core custom-chip customers. Google, Meta, Anthropic and OpenAI have been linked with Broadcom projects, while other customer relationships have not been publicly identified.

AI data centres require more than processors. Thousands of accelerators must exchange enormous quantities of data without creating delays that leave expensive computing capacity idle.

Broadcom supplies Ethernet switches, network interface components, optical connectivity products and other chips used to move data through AI clusters. Networking accounted for almost 40% of its AI semiconductor revenue in the previous quarter.

That contribution separates Broadcom from companies whose AI exposure rests primarily on a single accelerator product.

Traders should therefore look beyond the headline AI revenue figure. Broadcom could reach its US$16 billion target through a combination of custom-accelerator shipments and networking growth, but the balance between the two will reveal where hyperscaler spending is accelerating fastest.

Broadcom’s custom-chip strategy offers enormous revenue potential, but it depends on a small number of companies making exceptionally large capital commitments. Investors will want more detail on how many are contributing meaningful production revenue rather than remaining in the design or sampling stages.

Several points will shape the reaction:

• Whether existing customers are increasing deployment volumes.

• Whether newer programs remain on schedule for fiscal 2027.

• Whether Broadcom adds another major custom-silicon customer.

• Whether the US$100 billion AI chip target still rests heavily on one or two hyperscalers.

• Whether manufacturing and memory supply can support the planned ramp.

A broader customer base would make the growth outlook more durable. Heavy reliance on a small number of deployments could leave quarterly revenue exposed to changes in individual investment plans.

Broadcom’s forecast for more than US$100 billion in fiscal 2027 AI chip revenue has become the central measure of its valuation.

The target covers chips rather than Broadcom’s entire business. Reaching it would require AI semiconductor revenue to continue expanding rapidly from the US$16 billion expected in the latest quarter.

Management’s decision to leave that forecast unchanged in June disappointed investors who had expected stronger guidance. The shares have since fallen around 25% from their peak, placing greater pressure on the company to provide new evidence behind the target.

An upgrade could show that additional customer orders, networking requirements or production schedules are running ahead of plan. Reaffirming the target may still support the shares if management provides greater detail on contracts and deployment timing.

Semiconductors will dominate the result, but Broadcom’s infrastructure software business remains a major contributor to revenue and cash flow.

The company acquired VMware in 2023 and has since changed its product, licensing and customer strategy. Broadcom expects fiscal third-quarter infrastructure software revenue of approximately US$8.9 billion, up about 31% from the previous year.

VMware gives Broadcom a more diversified business than a pure semiconductor company. Subscription and infrastructure revenue can help offset some of the volatility created by large chip-production schedules.

Hyperscalers are committing hundreds of billions of dollars to AI infrastructure. The market may be large enough for Nvidia’s general-purpose platforms and customer-designed accelerators to grow simultaneously.

Broadcom exceeding US$16 billion in AI revenue would provide evidence that spending is reaching several layers of the data-centre supply chain. That could support chip manufacturers, memory producers, networking companies and selected cloud providers.

The market reaction could follow several paths:

• Broadcom beats and raises its AI outlook: Supports the view that custom silicon is becoming a second major AI chip market.

• Broadcom beats but leaves its long-term forecast unchanged: The shares may struggle if investors again conclude that the result was already reflected in expectations.

• AI revenue misses US$16 billion: Raises concern about deployment delays or customer concentration.

• Networking outperforms custom accelerators: Suggests the infrastructure surrounding AI clusters remains a powerful growth market.

• Margins weaken: Shows that rapid custom-chip growth may come with a profitability trade-off.

• VMware disappoints: Leaves Broadcom more dependent on semiconductor growth to justify its valuation.

Broadcom is a major Nasdaq 100 constituent, and its guidance can influence sentiment across Nvidia, Marvell, AMD and other AI-linked companies. A weak reaction could renew pressure on a semiconductor sector already trading below its recent highs.

Broadcom’s result can affect the company’s shares, the Nasdaq 100 and the broader semiconductor sector.

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