Broadcom's AI Chip Growth Outpaces Stock Performance

Broadcom reported fiscal 2026 third-quarter revenue of $29.6 billion, an 86% year-over-year increase driven by demand for custom AI chips and networking processors. Non-GAAP earnings per share nearly doubled to $3.32. Despite these figures, the stock underperformed the PHLX Semiconductor Sector index, which rose 97% over the past year, because the company’s fourth-quarter guidance of $34.8 billion fell short of the $35.1 billion Wall Street expected.

The divergence between operational results and market valuation highlights a specific disconnect in how investors are pricing Broadcom’s AI infrastructure business. While the PHLX Semiconductor Sector index surged, Broadcom remained flat, creating a valuation gap that some analysts attribute to short-term guidance misses rather than long-term structural issues. The company’s core ASIC and networking components continue to see robust uptake in AI data centers, suggesting the current stock price may not fully reflect the underlying demand trajectory.

AI Revenue Accelerates Rapidly

Broadcom’s AI chip revenue expanded by 221% in the third quarter to reach $16.7 billion. For the current quarter, the company anticipates a 236% year-over-year increase, projecting AI revenue of $21.7 billion. This segment now constitutes a significant portion of the total business, with overall fiscal 2026 AI revenue expected to hit $57.6 billion, an 186% increase from the prior year. The rapid scaling indicates that AI workloads are becoming the primary driver of Broadcom’s top-line growth.

Long-Term Projections Exceed Expectations

Management has outlined a multi-year growth path that extends beyond the current fiscal cycle. Broadcom estimates AI revenue will double to $115 billion in fiscal 2027 and reach $230 billion in fiscal 2028. On the recent earnings call, executives confirmed that supply chains are secured to meet the fiscal 2028 outlook. Additionally, the company projects earnings per share will exceed $30.00 in fiscal 2028, signaling confidence in sustained profitability as AI infrastructure spending continues to rise.

Industry Spending Context Remains Strong

Broadcom’s growth aligns with broader industry trends in capital expenditure. Nvidia recently estimated that the combined capital spending of the top five hyperscalers will reach $800 billion in 2026 and potentially $1.3 trillion in 2027. Total AI capital expenditure is projected to grow to between $3 trillion and $4 trillion by 2030. This macro environment supports Broadcom’s demand for custom silicon, as major tech firms continue to invest heavily in building out their AI infrastructure capabilities.