Broadcom ( AVGO ) delivered stronger-than-expected Q1 2026 financial results, driven by artificial intelligence (AI) tailwinds. The market reacted positively to the results, with AVGO shares rising more than 4.5% in pre-market trading after the announcement.
The semiconductor and infrastructure software giant reported record quarterly revenue of $19.3 billion, up 29% from the same period last year. Much of this growth stems from anticipated strong demand for AI-related semiconductors, an area where Broadcom is steadily expanding its presence as spending on AI infrastructure increases.
Strong top-line performance also translated into impressive profitability. Adjusted EBITDA reached a record $13.1 billion for the quarter, while adjusted earnings per share (EPS) grew 28% year-over-year (YoY). These results underscore Broadcom’s ability to drive revenue growth through operating profit to wide margins.
Management indicated that the company’s momentum will continue to strengthen as the year progresses. With continued AI spending, Broadcom is well positioned to capture a growing share of this demand. Notably, higher earnings and earnings could drive AVGO stock higher.
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Broadcom entered fiscal 2026 with strong momentum, largely driven by massive investments by Hyperscale to build AI infrastructure. The company’s semiconductor segment posted revenue of $12.5 billion in the first quarter, accelerating to 52% from 35% in the previous quarter. The primary catalyst was AI-related semiconductor revenue, which rose 106% to $8.4 billion.
Looking ahead, management expects further acceleration in the growth rate. For the second quarter, semiconductor revenue is expected to reach $14.8 billion, up 76% YoY. AI chips will account for most of this growth, with revenue expected to rise 140% to $10.7 billion.
The biggest catalyst for Broadcom is its Custom Accelerator, or XPU, franchise. Revenue from its chips rose 140% YoY in the first quarter as major customers were hired. Many technology leaders are driving demand. Alphabet’s ( GOOG ) ( GOOGL ) Google continues to scale its AI infrastructure with a strong adoption of its seventh-generation Ironwood TPU, while next-generation TPU deployments are expected to expand further after 2027.
Meanwhile, AI startup Entropy is already showing strong demand for computing with 1 gigawatt TPU capacity in 2026, and is expected to scale beyond 3 gigawatts in 2027. The customer base is also expanding. In addition, META Platforms (META) continues its MTIA Custom Accelerator roadmap, shipping Broadcom’s pre-related products. The next generation of these chips is expected to scale computing capacity to several gigawatts later in the decade.
Broadcom is also providing custom AI chips to two additional major customers that are expected to double their shipments by 2027. In addition to its existing customers, the company recently added a sixth major partner.
Beyond XPU, AI networking is another important growth engine. Network revenue from AI infrastructure grew by more than 60% in the first quarter and accounted for about a third of all AI revenue. In the second quarter, management expects networking to represent about 40% of AI revenue as hyperscalar clusters expand and demand faster communications.
Broadcom’s switching and connectivity technologies, including the Tomahawk 6 switch and 200G SerDes, are seeing strong adoption in large-scale AI data centers. The company plans to extend that lead with the next-generation Tomahawk 7 platform.
By rapidly scaling the AI workload, Broadcom management highlighted that the company could generate more than $100 billion in annual AI chip revenue by 2027.
Broadcom is well positioned to deliver significant growth in fiscal 2026 and 2027, driven by increased demand for AI-related semiconductor products and expected acceleration in its infrastructure software business.
Demand for its high-performance network chips and custom silicon is increasing, which translates into strong revenue and supports bottom-line growth. At the same time, high adoption of VMware Cloud Foundation (VCF) will support this infrastructure software component.
Supporting AVGO’s investment case is its valuation, which remains relatively favorable compared to projected earnings. AVGO trades at a forward price-to-earnings ratio of around 36.6, which is attractive given analyst estimates of 54.5% EPS growth in fiscal 2026, plus 40.2% in 2027.
Overall, accelerating AI demand, strengthening software revenue, and strong earnings will likely boost Broadcom stock.
Wall Street analysts currently maintain a “Strong Buy” consensus on AVGO stock. Furthermore, the average analyst price target of $446.48 indicates an upside of about 41% over the next 12 months, compared to the March 4 closing price of $371.53.
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As of the date of publication, Amit Singh did not hold positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
