Broadcom has improved its AI revenue outlook. It has a new major customer

Chipmaker Broadcom has raised its AI revenue forecast for fiscal 2026. The company's optimism grew after a new order worth more than $10 billion. It also beat Wall Street expectations for revenue and earnings in the previous quarter. The stock, which had already more than doubled in price since April, added another 4% after the reports were released.

Chipmaker Broadcom will raise its revenue outlook for its AI chip division for fiscal 2026 (starting in November), CEO Hock Tan told investors after releasing its quarterly report. Revenue will be boosted by a major new customer and a chip manufacturing contract worth over $10 billion, which is scheduled to be fulfilled in the third quarter of fiscal 2026, he explained.

The company did not name the client itself, but the Financial Times reported the day before that OpenAI is working with Broadcom to develop its own specialized AI chips.

"Last quarter, a major customer placed production orders with Broadcom," Tan said. - "We now expect our FY 2026 AI revenue outlook to be significantly improved from what we indicated last quarter.

The company had previously estimated that its AI chip revenue would grow by about 50-60% in fiscal 2026, the same as the current year. However, now, with the addition of a new customer, which Tan said has "urgent and very significant demand," the growth rate will accelerate and prove to be "quite significant," Bloomberg reports.

For the current quarter, the supplier of chips for Alphabet and Apple forecast revenue of $17.4 billion. Analysts on average expected $17.05 billion, but individual estimates exceeded $18 billion, according to data compiled by Bloomberg.

Broadcom shares initially fell a few percent after the report in extended trading on Sept. 4, but then rose 4 percent to $318.3 on the back of a rosy outlook. The stock was up 1.2% in pre-report trading.

Broadcom's revenue rose 22% to $15.96 billion in the third quarter of fiscal 2025, which ended in August. Analysts polled by LSEG had expected $15.83 billion, CNBC writes. Adjusted earnings came in at $1.69 per share versus Wall Street expectations of $1.67.

The company reported net income of $4.14 billion, or $0.85 per share, after a loss of $1.88 billion (or $0.4 per share) a year earlier. Last year's loss was due to a one-time $4.5 billion tax write-off caused by the company's intellectual property relocation to the U.S., CNBC explained.

AI chip sales rose 63% to $5.2 billion, topping the $5.11 billion forecast. Broadcom expects this figure to rise to $6.2 billion in the fourth quarter. Analysts had forecast $5.82 billion, indicating continued growth in AI spending.

The company also reported that chip sales, combined in its semiconductor solutions segment, increased 57% to $9.17 billion, while revenue in its infrastructure software segment, which includes VMware, rose 43% to $6.79 billion.

Expectations ahead of the report were extremely high, as Broadcom shares have more than doubled in value since April, increasing the chipmaker's market capitalization by about $730 billion and making the company the third most profitable asset in the Nasdaq 100 index. In Broadcom's report, investors were looking for confirmation that technology spending is not declining.

Last week, Nvidia - a major AI beneficiary and Broadcom competitor - gave a subdued revenue forecast, raising concerns about the industry overheating. Other AI chip makers have already struggled recently. Shares of Marvell Technology, a close competitor of Broadcom in the market of custom semiconductors (ASIC - application-specific integrated circuits), fell 19% on August 29 after the release of the report for the second quarter - revenue in the data center segment did not meet expectations. However, Broadcom's business is more diversified: the company works to accelerate data transfer in its network controllers for data centers, produces components for iPhones and sells virtualization software needed for networks.

Although Broadcom is not growing as fast as Nvidia, the company is considered one of the main beneficiaries of the AI boom, Bloomberg notes. Large customers developing and operating AI models rely on its Application Specific Integrated Circuits (ASICs) and networking equipment to handle workloads in data centers.

Despite the stock rally, more than 90% of analysts covering Broadcom believe it's not too late to buy the chipmaker's securities, according to MarketWatch. The publication suggests that Broadcom shares are poised to continue rallying after the semiconductor company encouraged Wall Street with its fresh outlook and comments.

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