A $1.8 trillion company just reported earnings. Its revenue grew 86% in one year, net income more than tripled, and AI revenue surged 221%.
And the stock? It fell as much as 5% in after-hours trading.
Yes, you read that correctly. The company smashed expectations, and investors punished it.
We are, of course, talking about Broadcom.
The quarter ended on August 2. And the numbers are genuinely incredible.
Revenue reached $29.59 billion. The same period last year was $15.95 billion. That's an 86% increase in just one year.
Adjusted earnings came in at $3.32 per share, while analysts were expecting around $3.23.
But the most impressive figure is net income. Last year, it was $4.14 billion. This year? $13.09 billion. More than triple.
And where did all that come from? Semiconductors generated $20.84 billion, up 70%. The software and infrastructure business brought in another $8.75 billion, up 30%.
There is, however, a small “but” here. In software, analysts were expecting $8.82 billion. Keep that in mind, because it will matter later.
And this is where things get even more interesting.
Within semiconductors, there is a segment dedicated exclusively to artificial intelligence. It generated $16.7 billion. Analysts were expecting $15.9 billion. And growth compared with last year was 221%.
“And what exactly does this company make?” you might be wondering.
In very simple terms, it makes chips tailored to each customer. It doesn't sell ready-made products to everyone, like Nvidia does. It goes to Google, Meta, OpenAI, and others, and designs their own chip specifically for the work they want to do.
These are called custom accelerators.
For example, it has been working with Google for years on the famous TPUs, while it recently announced the Jalapeno chip with OpenAI. Apple also said it would spend more on Broadcom for chip production in the United States.
And CEO Hock Tan was clear:
“Demand for our custom AI accelerators and networking remains very strong.”
Now we get to the part that ultimately determined everything.
For the current quarter, Broadcom expects revenue of approximately $34.8 billion, with adjusted EBITDA around 66%. And AI revenue, it says, will reach $21.7 billion. That's 236% year-over-year growth.
That sounds enormous, and it is.
The problem is that the market was expecting around $35 billion. Some analysts were expecting more than $36 billion. So the guidance came in slightly below expectations.
And as if that weren't enough, there is something else that shows just how big this bet is.
Hock Tan has arranged financing mechanisms with Apollo and Blackstone so that Anthropic can pay for the expensive chips Broadcom developed with Google. And we're talking about infrastructure exceeding 20 gigawatts of computing power.
What does that mean?
Roughly the amount of energy produced by 20 nuclear power plants.
And the cost? Hundreds of billions of dollars.
And here is the answer.
The bar has been raised so high that “very good” is no longer enough.
Last week, Nvidia delivered guidance that, according to Bloomberg Intelligence analysts, set the bar extremely high for the entire sector. So when Broadcom came in with numbers that were good, but not explosive, investors were disappointed.
And there is another factor: competition.
Last month, Marvell announced a deal to build custom chips for Google. In other words, it is moving directly into Broadcom's territory.
The same goes for MediaTek.
And pay attention to this: both companies have Nvidia's backing.
And now for the strangest part of all.
Broadcom's stock has increased sixfold since the end of 2022, when ChatGPT launched and this whole story began.
But this year? It's up just 6%. Meanwhile, the S&P 500 is up 12% over the same period.
So the big winner of the AI boom is actually underperforming the index this year.
