Broadcom reported strong second quarter results amid "robust demand for AI networking."
The company, which is thriving as hyperscale cloud providers buy processors for AI workloads, delivered second quarter earnings of $4.96 billion, or $1.03 a share, on revenue of $15 billion, up 20% from a year ago. Non-GAAP earnings were $1.58 a share, two cents ahead of Wall Street estimates.
Broadcom CEO Hock Tan said AI revenue in the second quarter was up 46% from a year ago to $4.4 billion. "We expect growth in AI semiconductor revenue to accelerate to $5.1 billion in Q3, delivering ten consecutive quarters of growth, as our hyperscale partners continue to invest," said Tan.
CFO Kirsten Spears the company free cash flow was a record $6.4 billion, up 44% from a year ago.
Semiconductor revenue in the second quarter was $8.41 billion, up 17% from a year ago. Software infrastructure revenue, led by VMware, was $6.6 billion, up 25% from a year ago.
As for the outlook, Broadcom projected third quarter revenue of $15.8 billion with adjusted EBITDA of at least 66% of projected revenue.
Constellation Research analyst Holger Mueller said:
"Broadcom Is firing on all cylinders breaking the $15 bilion milestone in revenue by a hair. The demand for AI keeps growing Broadcom's semiconductor and infrastructure software businesses. It's good to see an extra $400 million invested into R&D, even if it cost Broadcom some revenue. CEO Hock Tan and team know Broadcom needs to invest into product to keep the growth going."
On the conference call with analysts, Tan said the following:
- "Custom AI accelerators grew double digits year-on-year, while AI networking grew over 170% year-on-year. AI networking, which is based on Ethernet was robust and represented 40% of our AI revenue. As a standard-based open protocol, Ethernet enables one single fabric for both scale out and scale up and remains the preferred choice by our hyperscale customers. Our networking portfolio of Tomahawk switches, Jericho routers and NICs is what's driving our success within AI clusters in hyperscalers."
- "We continue to make excellent progress on the multiyear journey of enabling our 3 customers and 4 prospects to deploy custom AI accelerators. As we had articulated over 6 months ago, we eventually expect at least 3 customers to each deploy 1 million AI accelerated clusters in 2027, largely for training their frontier models. And we forecast and continue to do so a significant percentage of these deployments to be custom XPUs. These partners are still unwavering in their plan to invest despite the certain economic environment."
- "There's no differentiation between training and inference in using merchant accelerators versus custom accelerators. I think the whole premise behind going towards custom accelerators continues, which is it's not a matter of cost alone. It is that as custom accelerators get used and get developed on a road map with any particular hyperscaler, there's a learning curve, a learning curve on how they could optimize the way the algorithms on their large language models gets written and tied to silicon."
- "Why inference is very hot lately--we're only selling to a few customers hyperscalers with platforms and LLMs--. is these hyperscalers and those with LLMs need to justify all the spending they're doing. Doing training makes your frontier models smarter. There's no question. Make your frontier models by creating very clever algorithms that consumes a lot of compute for training smarter. You want to monetize inference. And that's what's driving it. Monetize. To justify a return on investment on training you create a lot of AI use cases, and consumption through inference. And that's what we are now starting to see among our small group of customers."
- Customers are increasingly turning to VCF (VMware Cloud Foundation) to create a modernized private cloud on-prem, which will enable them to repatriate workloads from public clouds while being able to run modern container-based applications and AI applications. Of our 10,000 largest customers, over 87% have now adopted VCF."
