Broadcom (AVGO) delivered stronger-than-expected Q1 fiscal 2026 financial results, powered by artificial intelligence (AI) tailwinds. The market reacted positively to the results, with AVGO shares climbing over 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 came from stronger-than-anticipated demand for AI-related semiconductors, an area where Broadcom has been steadily expanding its presence as spending on AI infrastructure rises.
The 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 highlight Broadcom’s ability to convert revenue growth into expanding margins through operating leverage.
Management signaled that the company’s momentum will continue to strengthen as the year unfolds. With AI spending continuing to surge, Broadcom appears well-positioned to capture a growing share of that demand. Notably, higher revenue and earnings could power AVGO stock higher.
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Broadcom entered fiscal 2026 with solid momentum, largely driven by the massive investments by hyperscalers building AI infrastructure. The company’s semiconductor segment delivered $12.5 billion in revenue in the first quarter, with YoY growth accelerating to 52% from 35% in the prior quarter. The primary catalyst was AI-related semiconductor revenue, which surged 106% to $8.4 billion.
Looking ahead, management expects further acceleration in the growth rate. For the second quarter, semiconductor revenue is projected to reach $14.8 billion, up 76% YoY. AI chips will account for the majority of that growth, with revenue anticipated to climb 140% to $10.7 billion.
The biggest catalyst for Broadcom is its custom accelerator, or XPU, franchise. Revenue from these chips rose 140% YoY in the first quarter as large customers ramped up deployments. Several technology leaders are driving demand. Alphabet’s (GOOG) (GOOGL) Google continues scaling its AI infrastructure with strong adoption of its seventh-generation Ironwood TPU, while next-generation TPU deployments are expected to expand further after 2027.
Meanwhile, AI startup Anthropic is already showing strong compute demand in 2026, with about 1 gigawatt of TPU capacity, and is expected to scale beyond 3 gigawatts in 2027. The customer base is broadening as well. Further, Meta Platforms (META) continues advancing its MTIA custom accelerator roadmap, with Broadcom already shipping related products. The next generation of these chips is expected to scale to multiple gigawatts of computing capacity later in the decade.
Broadcom is also supplying custom AI chips to two additional major customers whose shipments are expected to more than double by 2027. In addition to its existing clients, the company recently added a sixth major partner.
Beyond XPU, AI networking is becoming another important growth engine. Networking revenue from AI infrastructure rose 60% YoY in the first quarter and accounted for roughly one-third of total AI revenue. By the second quarter, management expects networking to represent about 40% of AI revenue as hyperscalers expand clusters and demand faster interconnects.
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 this lead with the next-generation Tomahawk 7 platform.
With AI workloads scaling rapidly, Broadcom’s 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 surging demand for AI-related semiconductor products and an expected acceleration in its infrastructure software business.
The demand for its high-performance networking chips and custom silicon is rising, which is translating into solid revenue and supporting bottom-line growth. At the same time, the higher adoption of VMware Cloud Foundation (VCF) will support its infrastructure software segment.
Supporting AVGO’s investment case is its valuation, which remains relatively reasonable relative to its projected earnings trajectory. AVGO trades at a forward price-to-earnings multiple of about 36.6, which is attractive given analysts’ projections of 54.5% EPS growth in fiscal 2026, followed by an additional 40.2% in 2027.
Overall, accelerating AI demand, strengthening software revenue, and robust earnings will likely drive Broadcom’s stock higher.
Wall Street analysts currently maintain a “Strong Buy” consensus on AVGO stock. Further, the average analyst price target of $446.48 implies about 41% upside over the next 12 months, compared with its March 4 closing price of $371.53.
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On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
