Broadcom on Thursday evening reported a strong quarter and a solid guide. But the stock really got going after CEO Hock Tan talked about $10 billion in custom AI-related orders from a new customer. Revenue in the fiscal 2025 third quarter, which ended Aug. 3, increased 22% year over year to $15.95 billion, ahead of the $15.83 billion consensus forecast, according to estimates compiled by LSEG. Adjusted earnings per share increased 36% from the year-ago period to $1.69, also outpacing expectations of $1.65, LSEG data showed. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 30% year over year to a record $10.7 billion in the quarter, beating the FactSet consensus of $10.46 billion. AVGO YTD mountain Broadcom YTD While the results and the outlook were great, commentary on the post-earnings conference call proved to be the most crucial. At around 5:10 p.m. ET, the Club stock soared after Tan revealed a fourth major customer. He did not name the customer. Shares then caught a second leg higher around 5:30 p.m. ET after Tan said he would remain CEO “at least” through 2026. The stock rose more than 4.5% to just above $320. Bottom line Broadcom’s great quarter, solid guide, and the CEO remarks on the call all pointed to sustained strong demand for artificial intelligence semiconductors and networking solutions, housed in the company’s AI solutions segment. VMWare, the software giant Broadcom bought for $69 billion nearly two years ago, continues to power the company’s infrastructure software segment. Margin performance was also impressive with Broadcom’s fiscal Q3 consolidated gross margin expanding 99 basis points, or nearly a full percentage point, year over year; adjusted EBITDA margin expanded 418 basis points, and operating income profit margin expanding a robust 474 basis points. AI-related revenue in the fiscal third quarter grew 63% year-over-year to $5.2 billion. Better yet, Tan said he expects that acceleration to continue in the company’s current quarter, the company’s fiscal fourth quarter, guiding for $6.22 billion in AI-related revenue. Tan also noted that demand for custom silicon from its three key customers – believed to be Alphabet , Club name Meta Platforms and TikTok parent ByteDance – continued to grow. Broadcom is also in talks with additional prospects – last quarter they quantified it as four prospects – to develop custom silicon. In fact, Tan noted on the call that during the quarter, one of the prospects did indeed release a production order for which Broadcom expects to ship product “pretty strongly” beginning in 2026. Tan noted that the company “secured over $10 billion of orders.” The Financial Times is reporting that Broadcom is working with OpenAI. Perhaps, OpenAI is the fourth customer Tan talked about. As a result, management expects AI revenue for the full year “to improve significantly” versus prior expectations. During the Q & A session, Tan said the addition of a fourth customer with “immediate and fairly substantial demand really changes our thinking of what 2026 would be starting to look like.” Tan also said, “Looking beyond what we’re just reporting this quarter with robust demand from AI, bookings were extremely strong and our current consolidated backlog for the company hit a record over $110 billion.” Why we own it Broadcom is a high-quality semiconductor and software company run by an incredible CEO in Hock Tan. The company is a big AI beneficiary through its networking and custom chip businesses. Competitors : Marvell Technology, Advanced Micro Devices and Nvidia Last buy : Nov. 21, 2024 Initiation date : Aug. 24, 2023 We’re certainly pleased to hear about the new customer and Tan’s plans to stay on as CEO. Given the large shoes his successor will ultimately need to fill, we’re thrilled to hear that he’ll be sticking around for the foreseeable future. In the end, it seems that Broadcom is taking share in custom semiconductors and winning with its networking solutions. We felt that Broadcom’s release would not reflect what we saw from peer custom chip name Marvell Technology , with Jim Cramer saying ahead of the release that Tan was “going to deliver.” That conviction is being rewarded. With signs pointing not only to demand for AI solutions sustaining, but strengthening, as we work our way into 2026, we are raising our price target to $350 from $290. However, we are keeping our hold-equivalent 2 rating for the time being as it is not our style to chase a move like the one seen out of Broadcom in after-hours trading. As of the close of Thursday’s regular session, the stock was over 30% year-over-year. Any level above $317.35 in Friday trading would be an all-time high. It’s rather remarkable how Broadcom has fought back from…
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