The Path to $230 Billion: Broadcom Outlines the Next Phase of Its AI Growth Story

Key Points

• Broadcom beat quarterly sales and earnings estimates, but its next-quarter revenue guidance fell slightly short of analyst expectations.
• The company issued new long-term AI semiconductor guidance, forecasting $115 billion in revenue in fiscal year 2027 and $230 billion in fiscal year 2028.
• Broadcom said Anthropic and OpenAI are on track to surpass Alphabet as its largest XPU customers, even as its partnership with Alphabet remains strong.

Broadcom's NASDAQ: AVGO latest earnings report was among the most revealing the company has posted recently.

Another quarter of explosive AI sales growth stood out, but the quarter itself was far from the biggest story.

Management also provided key stats and insights that help investors gain a much more complete understanding of the dramatic growth to come.

The more important takeaway came later, when management laid out how much AI semiconductor demand it believes it can serve over the next two fiscal years.

Broadcom Beats, But Next Quarter Guidance Falls Short

Broadcom released its financials approximately an hour before its earnings call began. The headline numbers alone elicited a negative reaction from markets, with Broadcom shares falling as much as 5% in after-hours trading.

Broadcom posted sales of $29.6 billion, an 86% increase year-over-year (YOY). This slightly exceeded analyst estimates of $29.43 billion. The company’s earnings per share came in at $3.32, a 96% YOY increase, beating estimates of $3.22.

The likely cause for Broadcom’s drop after releasing its report was its guidance for the next quarter. Broadcom said it expects to generate sales of $34.8 billion, slightly below estimates of $35 billion.

Still, Broadcom solidly surpassed its own guidance on AI semiconductor sales of $16 billion. The company raked in segment revenue of $16.7 billion, up 221% YOY. Next quarter, the company expects even more astonishing growth, guiding for $21.7 billion in sales, or a 236% YOY increase. Considering these factors, Broadcom increased its full-year AI semiconductor sales guidance to $58 billion, up from $56 billion. However, this figure still pales in comparison to what Broadcom expects going forward.

Broadcom Provides Long-Awaited AI Semiconductor Sales Guidance

The tide began to turn as CEO Hock Tan gave his presentation. Management gave investors the clarity they sought, offering concrete AI guidance not only for fiscal year 2027 (FY2027) but also for FY2028.

In FY2027, the company said it had secured enough supply to generate $115 billion in annual AI semiconductor revenue. This figure implies a near doubling of its AI semiconductor revenue and is a notable increase compared to the company’s previous guidance of “more than $100 billion."

Importantly, Tan directly said that Broadcom’s AI demand exceeds what this outlook implies, meaning that supply is gating growth. In this context, it makes sense why Broadcom did not previously raise its AI semiconductor guidance. The company was likely unsure how much supply of key components it would be able to secure, and consequently, the number of chips it could deliver to customers. Among the most likely supply constraints that Broadcom is facing is high-bandwidth memory (HBM), which remains in tight supply.

The company says that it will work to secure more supply, implying upside to its forecast if it does. Meanwhile, Broadcom expects AI semiconductor sales to double again in FY2028 to $230 billion. This number alone, which does not consider Broadcom’s non-AI semiconductor or software businesses, is 3.6 times higher than Broadcom’s total revenue in fiscal year 2025.

These comments quickly shifted the market’s interpretation of Broadcom’s results. Within minutes, the stock moved from down 3% to up 3%.

Frontier Labs Set to Supplant Alphabet as Broadcom’s Top AI Customer

Broadcom shed considerable light on the relationships with its six XPU customers, providing several very important statements on this front. First, the company noted that its engagement with Alphabet NASDAQ: GOOGL has “never been stronger." This came even as the company specifically said MediaTek OTCMKTS: MDTKF was developing Alphabet’s Tensor Processing Unit (TPU) v8t, substantiating recent rumors.

On the other hand, Broadcom is responsible for the TPU v8i. The v8i is the next-generation inference-specific variant of the TPU 8. This is particularly positive to see, as analysts expect inference workloads to increasingly grow their share of AI workloads compared to training workloads. Overall, Broadcom says it intends to “deliver multi tens of billions of dollars of TPUs annually” to Alphabet. These comments somewhat mitigate concerns that Broadcom is losing share within Alphabet’s TPU program.

Additionally, even if the company is losing share at Alphabet, the negative impact of this is likely to lessen over the coming years. Broadcom noted that Anthropic is on track to become its largest XPU customer, while OpenAI is on track to become its second-largest XPU customer. This would presumably knock Alphabet down to its third-largest customer over time after having held the top spot for years. In turn, Broadcom should be less reliant on maintaining a massive share of Alphabet’s TPU program.

Broadcom’s AI Growth Story Is Just Getting Started

All in all, Broadcom shares were down slightly at the conclusion of after-hours trading. It’s likely that the stock would have seen a meaningfully positive boost if its FY2027 AI semiconductor guidance were higher, as the number was somewhat underwhelming. However, supply constraints are a very reasonable explanation for why Broadcom chose the number it did.

Nonetheless, Broadcom continues to forecast massive AI growth over multiple years, with $230 billion in AI chip sales expected in FY2028, supporting a healthy outlook for this stock.

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