Why Broadcom Stock Rallied on Thursday
Key Points
Broadcom delivered solid results and an eye-catching forecast.
Strong demand for the company's AI-related hardware is driving its financial results higher.
Broadcom stock is attractively priced, particularly in light of its accelerating opportunity.
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Shares of Broadcom (NASDAQ: AVGO) climbed on Thursday, gaining as much as 5.9%. As of 1:16 p.m. ET, the stock was still up 3.5%, despite a general market downtrend.
The catalyst that sent the semiconductor specialist higher was robust results fueled by strong demand for its artificial intelligence (AI) hardware.
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A big boost from AI
In its fiscal 2026 first quarter (ended Feb. 1), Broadcom generated revenue that rose 29% year over year to $19.3 billion, driving adjusted earnings per share (EPS) to $2.05, up 28%.
For context, analysts' consensus estimates called for revenue of $19.14 billion and adjusted EPS of $2.02, so Broadcom surpassed both estimates by a wide margin.
The company cited robust demand for its AI hardware driving its financial gains, and the results backed that up. AI-related revenue of $8.4 billion -- a record -- soared 106% year over year, accounting for 44% of Broadcom's total revenue.
The future looks bright
What was particularly notable for Broadcom's forecast for the second quarter. Management is guiding for revenue of $22 billion, or year-over-year growth of 47%, a significant acceleration from its 29% growth this quarter.
Perhaps even more telling was a comment by CEO Hock Tan during the earnings call with analysts (emphasis mine): "Today, in fact, we have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027," he said.
As noted above, Broadcom generated AI-related revenue of $8.4 billion this quarter, suggesting a roughly 11-fold increase in less than two years. This illustrates that the AI party is just getting started.
Broadcom is currently trading for 32 times forward earnings, and less than 23 times next year's expected earnings, an attractive price for a company supplying critical infrastructure for the AI revolution.
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Danny Vena, CPA has positions in Broadcom. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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