Broadcom (AVGO 1.11%) once again reported strong artificial intelligence (AI) revenue growth when it released its fiscal 2026 Q1 results this week. While the stock got a lift from the news, shares are still down year to date, as of this writing.
Let's take a closer look at Broadcom's results and prospects to see if the semiconductor stock is a buy.
Image source: Getty Images.
AI momentum continues for Broadcom
Broadcom continues to see strength in both its networking and custom AI chip businesses, as its total AI revenue climbed 106% year over year in fiscal Q1 to $8.4 billion, above its expectations. Its custom AI ASIC (application-specific integrated circuit) business saw revenue surge by 140%, while AI networking revenue climbed 60%. It expects its networking revenue growth to materially accelerate in Q2, led by its Tomahawk Ethernet switch and SerDes (Serializer/Deserializer) products.
For fiscal Q2, it is looking for its AI revenue to increase by 76% to $14.8 billion. Meanwhile, Broadcom said its five largest custom AI chip customers are progressing well, and that can generate more than $100 billion in just AI chip revenue in fiscal 2027.
Broadcom's overall revenue for the quarter jumped 29% year over year to $19.31 billion, while adjusted earnings per share (EPS) climbed 28% to $2.05. The results surpassed analyst expectations for adjusted EPS of $2.03 on revenue of $19.18 billion, as compiled by LSEG. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, rose by 30% year over year to $13.1 billion.
Total semiconductor solutions revenue increased by 52% year over year to $12.5 billion, as its non-AI chip revenue growth remains sluggish, up just 4% in the quarter. Infrastructure software revenue, meanwhile, edged up by 1% to $6.8 billion, led by a 13% increase in VMware revenue.
NASDAQ: AVGO
Key Data Points
Gross margins, which have been a point of contention with investors, as its ASIC business does carry lower gross margins, came in at 77%, down from 79.1% a year ago. However, they are holding up well.
Looking ahead, Broadcom guided for fiscal Q2 revenue to grow by 47% to $22 billion. It is looking for gross margins to be flat sequentially. As noted, semiconductor revenue is expected to climb 76% to $14.8 billion, while infrastructure software revenue is projected to rise 9% to $7.2 billion.
The company also announced a $10 billion share repurchase program through the end of 2026.
Is Broadcom stock a buy?
With demand for custom AI ASICs and data center networking components both surging, Broadcom has one of the best growth opportunities of any company in the AI infrastructure space over the next few years. The $100 billion in AI chip revenue forecast for fiscal 2027 is huge, and it should also see its networking revenue soar as well. Meanwhile, ASICs can be more cost-effective, especially for inference, and with the inference market projected to become larger than training, Broadcom is in a good spot over the long term.
From a valuation perspective, Broadcom stock now trades at a forward price-to-earnings (P/E) ratio of about 32 times this year's fiscal estimates, but only around 22.5 times the fiscal 2027 consensus. With growth set to surge, that makes the stock a buy.
