The past few years have been fast and furious for Nvidia (NVDA +5.93%) investors. The company's graphics processing units (GPUs) helped lay the foundation for the artificial intelligence (AI) revolution. The demand for these processors has been off the charts, driving an unprecedented surge in revenue and profits. This fueled blistering gains in the stock price, which vaulted Nvidia's market cap to $4 trillion, the first company to ever surpass that lofty benchmark.
However, after several years of stellar gains, Nvidia investors are looking beyond the buzz and wondering if the stock has simply come too far, too fast. Many are looking for evidence that AI will live up to the hype, fueling greater adoption in the months and years to come.
Broadcom (AVGO 0.52%) just provided proof positive that the adoption of AI continues unfettered.
Image source: Getty Images.
Blockbuster results
Broadcom announced the results of its fiscal 2025 third quarter (ended Aug. 3), and the results were robust by every important measure. Record revenue of $15.95 billion climbed 22% year over year, fueling adjusted earnings per share (EPS) of $1.69, which jumped 36%.
For context, analysts' consensus estimates called for revenue of $15.82 billion and adjusted EPS of $1.66, so Broadcom cleared expectations with room to spare.
Demand for AI was the driving force behind the stellar results, as AI-centric revenue accelerated 63% year over year to $5.2 billion. This also marked the company's 10th consecutive quarter of AI-fueled growth. Free cash flow clocked in at $7 billion, up 47% year over year.
Broadcom gave investors other reasons to celebrate. CEO Hock Tan revealed that beyond its three existing hyperscale customers, one prospective customer had ordered production of its custom AI accelerators, becoming a "qualified customer," something Broadcom has been signaling for months. The combination of higher demand and the new customer increased the company's backlog to $110 billion.
NASDAQ: AVGO
Key Data Points
The chief executive also boosted Broadcom's fourth-quarter outlook and is now guiding for revenue of $17.4 billion, an increase of 24% compared to the prior-year quarter. For context, analysts' consensus estimates were calling for Q4 revenue of $17.01 billion. This illustrates that despite an already robust outlook, demand for AI continues to outpace expectations. Tan went on to say that while Broadcom originally expected its 2026 growth to mirror 2025, he now sees growth accelerating.
In a bonus announcement, Tan reported that the board of directors had extended his tenure as CEO until at least 2030.
"Broad"er implications
Beyond the positive implications for Broadcom investors, the results provide additional insight into the general state of AI. Investors have been concerned that the AI hype machine may have gotten ahead of actual adoption. Broadcom's accelerating results add weight to Nvidia's quarterly report, confirming the company's assertion that demand for AI continues at a rapid rate.
Nvidia CEO Jensen Huang said during the company's earnings call that he expects data center spending fueled by AI will reach between $3 trillion and $4 trillion by 2030, fueled by accelerating demand for AI, up from estimates of $600 billion this year.
Furthermore, Broadcom noted that its increasing backlog was partially the result of increasing demand from its existing hyperscale customers, suggesting that cloud infrastructure providers are boosting their capital expenditures (capex), above and beyond the increases previously announced.
By extension, this will likely translate to additional growth for Nvidia, as its GPUs are the gold standard for AI, controlling a dominant 92% of the data center GPU market, according to IoT Analytics. Furthermore, as AI expands downstream beyond the hyperscale data center, Nvidia is the logical choice when it comes to the processors needed for both AI training and inference.
NASDAQ: NVDA
Key Data Points
Since the dawn of the AI revolution in early 2023, Nvidia stock has soared more than 1,070% (as of this writing). In recent months, however, the popular narrative suggests the implementation of AI is slowing, despite Nvidia and Broadcom both posting accelerating results. The evidence is clear that AI adoption continues at a remarkable pace.
On the bright side, Nvidia stock is currently trading for just 27 times next year's expected earnings, which is an attractive price to pay for a company expected to grow revenue by 58% during its current fiscal year.
As the leading provider of data center GPUs, Nvidia has staked out a vast territory in the AI landscape and despite the stock's blistering gains, the evidence suggests its run is far from over.
