Broadcom Stock: This Chip Giant Smashed Expectations in Q1 FY2025 And It’s Just Getting Started With AI

TradingKey - If you thought the Artificial Intelligence (AI) boom was already priced into the stock market’s gains then some recent earnings news may make you think again. 

Broadcom Inc (NASDAQ: AVGO) just reported its Q1 FY2025 results (for the three months ending 2 February 2025) on Thursday (6 March) after the market closed in the US. 

The semiconductor and software powerhouse just shattered Wall Street expectations with record-breaking revenue, fuelled by skyrocketing demand for AI chips. Broadcom reported a staggering 77% year-on-year increase in AI-related revenue, with total revenue hitting an all-time high of US$14.9 billion – up 25% from last year. 

So, what does all this mean for investors? Let’s break down the key takeaways from Broadcom’s latest earnings and why this stock could be one of the best long-term AI bets on the market.

Record-breaking financial performance

Broadcom delivered an absolute blowout quarter, setting new records across the board. Total revenue reached US$14.9 billion, a 25% increase year-on-year, while adjusted EBITDA jumped 41% year-on-year to US$10.1 billion. 

The company also posted an impressive gross margin of 79.1%, a sign of its strong pricing power and operational efficiency.

Source: Broadcom’s Q1 FY2025 Earnings Press Release

Profitability was another highlight. Operating income surged 44% year-on-year to US$9.8 billion, while free cash flow came in at US$6 billion, representing 40% of total revenue. 

Despite aggressive investment in AI research and development, Broadcom continues to generate massive amounts of cash, which bodes well for long-term investors.

Even more encouraging, the company expects Q2 FY2025 revenue to stay at US$14.9 billion, driven by continued AI strength and steady growth in its infrastructure software business.

AI is the growth engine…and it’s gaining speed

The real story behind Broadcom’s blowout earnings? AI. AI-related revenue soared 77% year-on-year to US$4.1 billion, easily beating the company’s own guidance of US$3.8 billion. 

This growth was driven by stronger-than-expected shipments of networking chips to hyperscalers, the tech giants building the next generation of AI infrastructure. And it’s only going to get bigger. 

Broadcom projects AI revenue will climb to US$4.4 billion in Q2 FY2025, representing 44% year-on-year growth. The company is investing heavily in next-generation AI accelerators, including the industry’s first 2nm AI XPU.

Another key highlight? Broadcom is scaling up its AI networking capabilities in a meaningful manner with a slew of new releases. With hyperscalers racing to build massive AI data centres, Broadcom is perfectly positioned to capitalise on this long-term trend.

Broadcom’s AI customer base is expanding

Right now, three hyperscaler customers are driving the majority of Broadcom’s AI revenue. But that number is about to grow. Broadcom announced that four additional hyperscalers have engaged with the company to develop custom AI accelerators for training their own large-scale models. 

This brings Broadcom’s total hyperscaler engagements to seven – a massive opportunity for future revenue growth.

It’s important to note that these four new hyperscalers aren’t included in Broadcom’s projected US$60 billion to US$90 billion AI market opportunity by 2027. In other words, Broadcom’s AI business could be even bigger than expected as these new players ramp up. 

Tan also made an interesting point during the earnings call: hyperscalers are great at software, but Broadcom is the best at hardware. As AI workloads become more specialised, companies need custom-built solutions and that’s exactly what Broadcom excels at delivering.

VMware integration is driving software growth

While AI gets most of the attention, Broadcom’s infrastructure software business is booming as well. In Q1, software revenue hit US$6.7 billion, marking a 47% increase year-on-year. A major driver of this growth? 

The continued integration of VMware, which Broadcom acquired in 2023. Broadcom is transitioning VMware from perpetual licenses to a full subscription model, a shift that is already 60% complete. 

Even more promising, 70% of Broadcom’s largest 10,000 customers have now adopted VMware Cloud Foundation (VCF), enabling them to fully virtualise their data centres.

AI is playing a role here too. Enterprises are increasingly running AI workloads on-premises rather than in the public cloud, driving demand for VMware’s Private AI Foundation, which helps businesses integrate AI models with their existing data infrastructure. With enterprise AI adoption accelerating, Broadcom’s software segment could be a major long-term growth engine alongside its semiconductor business.

Broadcom is an AI powerhouse that’s just getting started

Broadcom’s Q1 FY2025 earnings were a clear signal that the AI boom is far from over. The company is firing on all cylinders, posting record revenue, expanding its AI customer base, and making bold investments in next-gen technology. 

With AI revenue expected to climb another 44% in the current quarter (Q2 FY2025), Broadcom is proving itself as a must-own stock for long-term AI investors.

If you’re looking for a company that’s dominating AI, expanding its software footprint, and delivering strong shareholder returns, Broadcom might just be the one for you.