Broadcom on Wednesday delivered a solid quarterly results while painting an increasingly upbeat picture around the future of its custom AI chip business. The report showed that despite fading enthusiasm for Broadcom’s stock, its most important business still has the wind at its back. Revenue in the fiscal first quarter of 2026, which ended Feb. 1, was a record of $19.31 billion, ahead of the $19.18 billion consensus forecast, according to estimates compiled by LSEG. On an annual basis, revenue rose 29%. Adjusted earnings per share (EPS) increased 28% to $2.05, also outpacing expectations of $2.03, LSEG data showed. Adjusted EBITDA grew 30% to a record $13.13 billion in the quarter, beating the FactSet consensus of $12.76 billion. A measure of operating profitability, EBTIDA is short for earnings before interest, taxes, depreciation, and amortization. AVGO 1Y mountain Broadcom’s stock over the past 12 months. Bottom line We may be just scratching the surface of what’s to come for Broadcom. Yes, the custom AI chip designer has already seen incredible growth during this artificial intelligence boom. However, Wednesday’s earnings report and conference call make it clear there’s plenty more on the way as the most important AI companies in the world look to Broadcom for help making specialized chips to further their ambitions. This report should hopefully tamp down at least some of the negativity around Broadcom’s chip business — specifically, that some of its customers like Google might look to bring more of the silicon design process in-house, relying less on Broadcom’s intellectual property and more on what’s called “customer-owned tooling,” or COT. That concern has been one of the reasons why Broadcom’s stock has struggled to gain traction this year. CEO Hock Tan said on the call that Broadcom will not see competition in customer-owned tooling “for many years to come.” His rationale: We’re still in the land-grab stage of the AI computing race, and customers who want specialized solutions need them fast and in significant volumes. As Tan put it, “Anybody can design a chip in a lab that works well.” But the hard part is working alongside third-party manufacturers such as TSMC to ensure the chips get into production smoothly and actually work in the real world once they’re fabricated. That is something Broadcom is incredibly experienced at, perhaps more than anyone else in the world aside from Nvidia. And on Broadcom’s relationship with Google, in particular, Tan had encouraging things to say about the roadmap for future versions of Tensor Processing Units (TPUs). “For Google, we continue our trajectory of growth in 2026 with strong demand for the 7-generation Ironwood TPU. In 2027 and beyond, we expect to see even stronger demand from next-generations of TPU,” Tan said. Another worry that has limited upside for Broadcom — and fellow Club chipmaker Nvidia, for that matter — is that technology giants’ spending on the AI buildout is at a peak and will need to come down in the coming years. Nvidia’s Jensen Huang pushed back on that last week. And on Wednesday night, Tan shed a light on Broadcom’s customer spending intentions beyond 2026. It didn’t sound like he’s worried about a pullback based on the demand they’re seeing and commitments being made from large key customers. The company’s “visibility in 2027 has dramatically improved,” Tan said. “Today, in fact, we have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027. We have also secured the supply chain required to achieve this.” A portion of that $100 billion projection is set to come from OpenAI, which late last year was confirmed to be Broadcom’s sixth custom silicon customer. That relationship seems to be moving along well. OpenAI is expected to “deploy, in volume, their first generation XPU in 2027, at over 1GW of compute capacity,” Tan said. XPU is Broadcom’s preferred abbreviation for custom chips. Broadcom executives also addressed a big concern about short-term hits to gross profit margins in the back half of this fiscal year — stemming from increased shipments of certain custom chip orders that contain more non-Broadcom components such as memory. This topic became a major issue the last time Broadcom reported in December, figuring prominently into the stock’s 11% sell-off on Dec. 12 . On Wednesday night’s call, CFO Kirsten Spears tried to walk back that commentary. “On further study, relative to even comments that I did make last quarter, the impact relative to our overall mix is actually not going to be substantial at all. So I wouldn’t worry about it,” Spears said. That was positive to hear, especially considering that gross margins of 77% in the quarter reported Wednesday night did come up a tad short versus expectations. Nevertheless, better-than-expected sales and improved operating efficiency allowed for Broadcom’s operating margin to expand year over year and exceed Wall Street expectations. In turn, that filtered into the earnings beat. Also serving to alleviate any concerns about the reported quarter is management’s forecast for the current quarter. On the release, Tan called out that AI revenue growth is expected to accelerate. For her part, finance chief Spears added that overall revenue growth is expected to accelerate as well, to a level above what the Street was anticipating. Earnings estimates will also need to be revised higher, as Broadcom forecast a better EBITDA margin than the Street was modeling coming into the print. Along with the solid results and upbeat guidance, management further signaled confidence in sustained demand by announcing a newly authorized $10 billion share repurchase authorization. Putting it all together, Broadcom tackled the overhangs surrounding its stock head on, and the market is responding nicely in extending trading, with shares up about 5%. Bull-versus-bear debates usually take time to be resolved, but this is a positive development in favor of the bulls. We’re reiterating our buy-equivalent 1 rating and price target of $425. Segment commentary In Semiconductor Solutions, the much larger of the two operating segments and the one Wall Street is focused on because it houses its AI business, revenue surged 52.4% year over year to $21.52 billion. That exceeded expectations of $12.4 billion, according to FactSet. AI semiconductor revenue jumped 106% year over year to $8.4 billion. That figure includes both custom chip revenue and AI networking products — things like Ethernet switches that help stitch the data center together. Custom chip revenue, in particular, increased 140% year over year in the quarter, with Tan noting that the momentum has continued into the second quarter. Regarding the legacy semiconductor sub-unit, fiscal Q1 revenue came in at $4.1 billion. Growth in enterprise networking, broadband, and server storage revenues were offset by the seasonal decline in wireless (as is the case following the launch of an iPhone given that the component orders are placed ahead of the launch). In Broadcom’s other operating segment, Infrastructure Software , revenue grew slightly year over year to $6.8 billion, missing the $6.99 billion consensus estimate, according to FactSet. On the call, Tan said that VMware was up 13% year over year, adding that “bookings continued to be strong as total contract value booked in Q1 exceeded $9.2 billion,” resulting in sustained annual recurring revenue growth of 19% year over year. Tan also tried to assuage concerns that VMWare could be disrupted by AI, which has been a concern across the industry this year. VMWare’s virtualization software is enabler of cloud computing. VMWare “cannot be disintermediated or replaced,” Tan said. “It allows enterprises, in fact, to scale complex generative AI workloads effectively with agility that hardware alone cannot provide. We are confident that the growth in generative and Agentic AI will create the need for more VMware, not less.” Guidance For its current (second) fiscal quarter, Broadcom forecasted total revenue to be about $22 billion, well ahead of the $20.56 billion expected, according to estimates compiled by LSEG. Importantly, AI revenue growth is expected accelerate in the coming quarter, with the team forecasting $10.7 billion in AI revenue in the second quarter. Add in the legacy semiconductor business forecast of approximately $4.1 billion, and we get a Semiconductor Solutions segment guide of $14.8 billion, well ahead of the $13.29 billion consensus forecast, according to FactSet. For Infrastructure Software, the $7.2 billion revenue guide also outpaced the $7.13 billion estimates from FactSet. The company expects fiscal Q2 adjusted EBITDA to be approximately 68% of projected revenue, or $14.96 billion, ahead of the FactSet consensus of 67.1% and $13.76 billion, respectively. 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