There seems to be no slowing down this AI stock.
If there were a Magnificent 8, Broadcom (NASDAQ:AVGO), the chip maker for mobile and broadband networks, would be on that list.
You could make the argument that Broadcom should be among the Magnificent 7, as it is the seventh largest company by market cap, ahead of Tesla (NASDAQ:TSLA).
Either way, Broadcom is a juggernaut whose performance has quietly rivaled Nvidia (NASDAQ:NVDA), even though it is not a direct competitor of Nvidia. Over the past two years, Broadcom stock has racked up triple-digit returns and this year it has returned 46%. That includes a 10% jump on Friday after the chipmaker released Q3 earnings, which were impressive.
- Revenue surged 22% year-over-year to a record $15.95 billion, beating estimates of $15.83 billion.
- Net income jumped to $4.1 billion, or 85 cents per share, up from a $1.9 billion net loss in Q3 2024. The net loss last year was due to a one-time $4.5 billion tax provision.
- Adjusted earnings were up 36% to $1.69 per share, which topped estimates of $1.65 per share.
The record revenue was fueled by a 63% increase in AI-chip related revenue, which accounted for about a third of total revenue and 57% of the $9.2 billion in semiconductor income. Infrastructure software, which includes VMWare, rose 17% to $6.8 billion.
A new $10 billion mystery client emerges
On the earnings call, CEO Hock Tan said the demand for Broadcom’s custom AI accelerator chips continues to grow. In the third quarter, it added a new customer, its fourth hyperscaler, which has secured $10 billion in shipments.
“Last quarter, one of these prospects released production orders to Broadcom, and we have accordingly characterized them as a qualified customer for XPUs and, in fact, have secured over $10 billion of orders of AI racks based on our XPUs,” Tan said on the call.
Several analysts, including Citigroup and Cantor Fitzgerald, believe this unnamed customer is OpenAI. OpenAI would join Meta, Google, and ByteDance as the three other custom AI customers, reported the Fly.
“Reflecting this, we now expect the outlook for our fiscal 2026 AI revenue to improve significantly from what we had indicated last quarter,” Tan said.
19% AI chip growth in Q4 targeted
Specifically, the company anticipates AI semiconductor revenue of $6.2 billion in Q4, up 19% from Q3.
The outlook calls for total revenue of $17.4 billion in Q4, which is up from the previous guidance of $15.8 billion. It would be up 8% from Q3.
Adjusted EBITDA is expected to be 67% of projected revenue, up from previous guidance of 66%.
Broadcom stock earned a slew of price target upgrades, with cantor Fitzgerald and Bernstein raising it to $400 per share. It is currently trading at $334 per share. Morgan Stanley boosted it to $382 while Citi raised it to $350.
The P/E ratio is extremely high at 111, but the forward P/E based on expected earnings is more reasonable at 36.
