Broadcom (AVGO) Stock Climbs as AI Chip Sales More Than Double in First Quarter

Key Takeaways

• First quarter revenue reached $19.3 billion, representing 29% annual growth and setting a company record
• Artificial intelligence revenue more than doubled, climbing 106% to $8.4 billion and exceeding internal projections
• Second quarter outlook calls for $22 billion in total revenue, including $14.8 billion from AI operations
• Morgan Stanley upgraded its price objective to $470 from $462 while maintaining an Overweight stance
• Wall Street analysts forecast potential AI revenue reaching $120 billion by fiscal year 2027

Shares of Broadcom (AVGO) finished March 5 trading at $322.77, marking a 4.8% gain following the chipmaker’s fiscal first quarter 2026 earnings release. The stock has experienced modest declines since that session and continues trading below its year-to-date starting point.

Broadcom Inc., AVGO

The company delivered quarterly revenue of $19.31 billion, surpassing Wall Street’s $19.18 billion projection and establishing a new high-water mark. Earnings per share on an adjusted basis reached $2.05, topping the Street’s $2.03 estimate.

The headline figure came from artificial intelligence operations — $8.4 billion in revenue representing 106% year-over-year expansion and exceeding the company’s own internal forecasts.

Custom AI accelerator chip revenue drove much of this performance, skyrocketing 140% from the prior-year period. Revenue from AI networking products increased 60%, with management indicating that networking growth should accelerate significantly in the current quarter thanks to Tomahawk Ethernet switching technology and SerDes product lines.

Adjusted EBITDA expanded 30% annually to $13.1 billion, translating to margins of 68% relative to revenue. Gross profit margins settled at 77%, down from 79.1% in the year-ago quarter but showing sequential stability.

Focus Shifts to Custom AI Chip Performance

Semiconductor solutions revenue climbed 52% year-over-year to $12.5 billion overall. Traditional non-AI chip revenue, by contrast, expanded just 4% — highlighting where the company’s growth engine truly resides.

Infrastructure software revenue increased modestly by 1% to $6.8 billion. Within that category, VMware-related revenue posted 13% growth.

During the earnings conference call, CEO Hock Tan pushed back against concerns that hyperscale AI developers might bypass chip partners like Broadcom by developing proprietary silicon. His counterargument was direct: “You need the best silicon design team around. You need cutting-edge SerDes, very advanced packaging. We’ve been doing this for more than 20 years. I would say we are by far way out there, and we will not see competition in customer-owned tooling for many years to come.”

CFO Kirsten Spears highlighted that the company distributed $10.9 billion to shareholders during the quarter — $3.1 billion through dividends and $7.8 billion via stock repurchases. Management also authorized an additional $10 billion buyback program extending through calendar year 2026.

Wall Street Analyst Lifts Valuation Target

Morgan Stanley’s Joseph Moore increased his valuation target on AVGO to $470 from a previous $462, reaffirming an Overweight recommendation. Moore characterized the quarterly performance as “strong,” citing AI-fueled upside momentum and enhanced long-term revenue visibility.

He observed that margin worries have diminished, networking segments exceeded expectations, and the fiscal 2027 AI opportunity remains attractive as custom accelerator programs continue expanding.

For the current quarter, Broadcom projected approximately $22 billion in revenue, suggesting 47% year-over-year expansion. AI segment revenue for the second quarter is anticipated to reach $14.8 billion — reflecting 76% annual growth.

Management has communicated to the analyst community that its five primary custom AI chip clients are advancing according to plan, and that the company can generate over $100 billion in AI chip revenue during fiscal 2027 alone. Morgan Stanley’s team places that estimate even higher at approximately $120 billion, with potential for further upward adjustments.

AVGO shares currently trade at approximately 32 times fiscal 2026 earnings projections and roughly 22.5 times the fiscal 2027 consensus estimate.

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