Will AI Demand Push Broadcom Stock Beyond $1 Trillion Again?

Artificial intelligence (AI)-powered demand drove Broadcom (AVGO) stock’s market cap beyond the $1 trillion mark. However, macroeconomic uncertainties and concerns over a potential slowdown in AI infrastructure investments recently led to a pullback in its stock price.

Despite these concerns, Broadcom’s latest earnings report for the first quarter of its fiscal 2025 reignited investor enthusiasm, as the company reported solid financials. The semiconductor giant posted total revenue of $14.9 billion, marking a 25% year-over-year increase, surpassing analysts’ expectations. Its consolidated adjusted EBITDA also hit a record high of $10.1 billion, up 41% year-over-year.

In response to this strong performance, Broadcom’s stock surged approximately 10% in the pre-market session on Friday, March 7, signaling renewed confidence among investors.

AI-Fueled Semiconductor Growth

Broadcom’s AI-driven semiconductor revenue was the highlight of its earnings report, with total semiconductor revenue reaching $8.2 billion, an 11% year-over-year increase. The key driver of this growth was AI-related revenue, which soared 77% year-over-year to $4.1 billion, exceeding management’s initial guidance of $3.8 billion. This outperformance was attributed to stronger-than-expected shipments of networking solutions to hyperscalers that are rapidly expanding their AI capabilities.

Looking ahead, Broadcom expects momentum in AI-related revenue to continue. For Q2, the company has projected AI revenue to reach $4.4 billion, reflecting a 44% year-over-year increase. This robust growth trajectory reflects the increasing dependence of hyperscalers on Broadcom’s high-performance accelerators and networking products to support their AI workloads.

Broadcom’s management remains optimistic about AI's long-term potential, highlighting that its three largest hyperscaler customers will generate a serviceable addressable market (SAM) of $60 billion to $90 billion by fiscal 2027. Additionally, the company is actively working with two other major hyperscalers to develop customized AI accelerators, further expanding its market reach.

Challenges in Non-AI Semiconductor Segments

Broadcom’s AI-driven revenue is soaring, but its non-AI semiconductor business is facing some turbulence. In the first quarter, revenue from non-AI semiconductors came in at $4.1 billion, marking a 9% decline from the previous quarter. This dip was largely due to seasonal weakness in the wireless segment, while other areas of the business have been slow to recover.

There are, however, some bright spots. Broadband showed strong double-digit growth in Q1, and that momentum is expected to continue into the second quarter. Server storage, another key segment, is also on the path to recovery, with projections pointing to high-single-digit growth in Q2. On the other hand, enterprise networking remains sluggish as customers work through existing inventory, keeping a lid on overall growth in the non-AI space.

Despite these challenges, Broadcom’s booming AI business is more than making up for the weakness elsewhere. AI demand is set to drive a 2% sequential increase in semiconductor revenue in Q2, translating to an impressive 17% year-over-year gain. While non-AI segments may take some time to rebound, the company’s strength in AI continues to be a major growth engine.

Expanding Software Revenue Through VMware Integration

Beyond semiconductors, Broadcom’s Infrastructure Software segment has become an increasingly important revenue driver, particularly following its acquisition of VMware. In Q1, Infrastructure Software revenue soared to $6.7 billion, up 47% year-over-year, benefiting from deal timing and the transition from perpetual licenses to subscription-based revenue models. As of Q1, over 60% of VMware’s licenses had transitioned to subscription-based models, significantly enhancing Broadcom’s recurring revenue stream.

A key growth driver in Broadcom’s software business is VMware Cloud Foundation (VCF), which enables enterprises to virtualize their entire data centers. Around 70% of Broadcom’s largest customers have adopted VCF, creating further opportunities for upselling and expansion.

Additionally, the rise of enterprise AI has opened new avenues for growth, as Broadcom’s VMware Private AI Foundation — developed in collaboration with Nvidia (NVDA) — has already attracted 39 enterprise customers. This platform enables enterprises to virtualize GPUs alongside CPUs, optimizing AI workloads for cost efficiency and performance.

For Q2, Broadcom expects Infrastructure Software revenue to be $6.5 billion, reflecting a 23% year-over-year increase, reinforcing the strength of this segment.

Will Broadcom Stock Break the $1 Trillion Mark?

Broadcom’s robust AI-driven growth and expanding software footprint will support its growth. The company has already breached the $1 trillion market cap once, and given its robust financial performance, it could do so again.

That said, risks remain. Macroeconomic uncertainties and a potential slowdown in AI infrastructure spending could impact growth. However, Broadcom’s strong guidance and continued expansion into high-demand markets suggest it has plenty of runway ahead.

Wall Street analysts remain overwhelmingly bullish on AVGO, with a consensus rating of “Strong Buy.”