although Broadcom (NASDAQ:AVGO) Coming off a strong first-quarter earnings report this week, the company’s earnings call minutes did include two things that should get investors excited. Both are huge positives and why the stock should be considered a top buy today. Let’s take a closer look at these two revelations.
It’s no secret that Broadcom has a huge artificial intelligence (AI) infrastructure opportunity, but the company crystallized that potential on its earnings call, saying it expects custom AI chip revenue to exceed $100 billion by 2027. It is worth noting that this is only AI ASIC (application specific integrated circuit) revenue and does not include AI data center network revenue. The company said it has a clear understanding of the expected increase in the number of customers for its AI chips letterAnthropic, meta platformand OpenAI.
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This $100 billion is just a huge number. Broadcom reported total revenue of just under $64 billion for fiscal 2025, with about $20 billion of that coming from artificial intelligence revenue. CitigroupMeanwhile, Broadcom estimates that approximately $14 billion in AI revenue comes from ASICs. That means its AI chip revenue will surge about sevenfold over the next two years.
At the same time, its artificial intelligence network revenue is also growing rapidly, up 60% last quarter, and is expected to grow even faster in the second fiscal quarter. The company expects that AI network revenue will account for one-third to 40% of its AI revenue in any given quarter, so it will generate an additional $30 billion to $40 billion in AI revenue from the network by fiscal 2027. This is just huge growth for Broadcom.
The biggest blow to Broadcom’s prospects is the low gross margin of its ASIC business. Meanwhile, profit margins on rack sales of Alphabet’s tensor processing units (TPUs) are expected to be even lower. However, during the conference call, Broadcom management came out to say that was not the case.
One analyst specifically asked the company on the call whether rack sales would reduce its gross margin by 500 basis points, since gross margin should be in the 45% to 50% range, and CEO Hock Tan asked analysts if they were experiencing an AI hallucination. Tan said Broadcom’s semiconductor gross margin will not be affected by higher sales and sales will be in line with its other semiconductor businesses. This is big news because sell-side analysts have largely been assuming that Broadcom’s gross margins would come under increasing pressure, but that doesn’t appear to be the case.
