Broadcom is solidifying its position as a key player in the artificial intelligence infrastructure boom, with its AI semiconductor business delivering robust growth and prompting the company to raise its long-term revenue projections. The chipmaker now expects AI-related revenue to hit $115 billion in fiscal 2027 and $230 billion in fiscal 2028, underpinned by strong demand for custom accelerators and networking equipment.
Custom AI chips drive expansion
In the fiscal third quarter ended August 2, Broadcom's AI semiconductor revenue soared 221% year over year. The company began volume shipments of its Ironwood TPU v7 chips to Alphabet and Anthropic, and also started shipping Alphabet's next-generation TPU v8i chips. Broadcom noted it is responsible for the v8i inference version, while MediaTek handles the v8t training variant, and that it brought the v8i to market faster than its competitor despite a later start.
The customer pipeline is broadening. Anthropic is expected to become Broadcom's largest customer next fiscal year, with plans to deploy 5 gigawatts of TPU v8i capacity in fiscal 2027 and 10 gigawatts in fiscal 2028. Alphabet is projected to remain a major buyer, generating tens of billions of dollars in annual TPU revenue over the coming years. OpenAI is anticipated to become the second-largest chip customer, with 5 gigawatts of its custom Jalapeño chip and successor slated for 2028. Broadcom also expects to supply Meta Platforms with 3 gigawatts of custom MTIA chips through 2028.
Strong quarterly results and raised outlook
Broadcom reported fiscal third-quarter revenue of $29.6 billion, up 86% from a year earlier. Adjusted earnings per share climbed 96% to $3.32, beating analyst expectations of $3.24 per share and $29.4 billion in revenue, according to LSEG. Semiconductor solutions revenue jumped 127% to $20.8 billion, though non-AI semiconductor revenue rose only 5% to $4.2 billion. Infrastructure software revenue grew 29% to $8.8 billion.
Gross margin declined 210 basis points to 75%, partly due to the larger share of semiconductor revenue, which carries a 76% margin compared with 84% for infrastructure software. For the fiscal fourth quarter, Broadcom expects revenue of $34.8 billion, representing 93% year-over-year growth. AI revenue is forecast to rise 236% to $21.6 billion, with gross margin expected at 73%.
The company said demand for fiscal 2027 AI revenue already exceeds its $115 billion projection, though supply needs to improve. It expects to have sufficient supply to meet its fiscal 2028 outlook and forecasts adjusted EPS of more than $30 that year.
Valuation debate persists
Despite the strong growth narrative, Broadcom shares have faced skepticism. Bruno Montoya Amador, equity analyst and co-founder of Mina Vista Capital Management, argued in a Seeking Alpha report that the market's doubts are excessive given Broadcom's expanding partnerships and the scale of planned AI deployments. He noted dip-buying support around $360 and said operating margins could remain above 68% despite pressure on gross margins.
Valuation remains a focal point. The stock trades below 21 times forward earnings, while Motley Fool pegged its valuation at 11.5 times fiscal 2028 earnings guidance. With AI revenue expected to double in fiscal 2027 and again in fiscal 2028, Broadcom's future performance hinges on its ability to expand chip supply while maintaining profitability as semiconductor revenue becomes a larger part of its business.
Investors have been closely watching Broadcom's moves, especially after recent share-loss fears triggered by a rival's Google deal. The company's options market implies a 7% swing, reflecting lingering AI doubts. However, some analysts see a breakout potential as demand offsets valuation concerns. The broader AI trade faces a pivotal week with jobs data and Broadcom earnings looming, as noted in this analysis.
This article is for informational purposes only and does not constitute financial advice.
