Broadcom (AVGO) trades modestly lower today despite reporting robust fiscal 2Q25 results, with adjusted EPS of $1.58 on revenue of $15.0 billion—each topping consensus estimates as its AI-driven segments continue to accelerate. Even so, shares slipped about 2–3 percent in after-hours trading, reflecting the market’s high bar for AI growth. AVGO is up roughly 12 percent year-to-date and remains near all-time highs, as investors weigh whether its AI momentum can sustain at such peak valuations.
Broadcom (AVGO) trades modestly lower today despite reporting robust fiscal 2Q25 results, with adjusted EPS of $1.58 on revenue of $15.0 billion—each topping consensus estimates as its AI-driven segments continue to accelerate. Even so, shares slipped about 2–3 percent in after-hours trading, reflecting the market’s high bar for AI growth. AVGO is up roughly 12 percent year-to-date and remains near all-time highs, as investors weigh whether its AI momentum can sustain at such peak valuations.
Broadcom’s performance underscores a balanced portfolio: semiconductor solutions revenue of $8.4 billion and an infrastructure-software segment (anchored by VMware) bringing in $6.6 billion—both posting double-digit year-over-year gains. Management also reiterated 3Q guidance of approximately $15.8 billion in revenue—essentially matching Wall Street’s forecast—with AI-related sales expected to climb to $5.1 billion. Even as Broadcom pours capital into next-generation AI products, it expects adjusted EBITDA margins of at least 66 percent, signaling disciplined cost control.
• AVGO posted 2Q25 adj. EPS of $1.58 on $15.0 billion in revenue (+20 percent yr/yr), slightly above expectations of $1.57 and $14.96 billion. AI-related chip sales jumped 46 percent yr/yr to $4.4 billion, highlighting sustained demand for networking solutions in large models and data centers.
o The semiconductor-solutions division generated $8.4 billion (+16.7 percent yr/yr), driven by early traction for the 102 Tbps Tomahawk 6 Ethernet switch, which doubles throughput for hyperscale customers.
o Infrastructure-software (anchored by VMware) contributed $6.6 billion (+25 percent yr/yr) as enterprise cloud migrations and subscription transitions accelerate.
• For 3Q25, AVGO guided to ≈ $15.8 billion in revenue—essentially in line with consensus—while forecasting AI-related revenue of $5.1 billion, up from $4.4 billion in 2Q.
o Management reiterated an adjusted EBITDA margin of at least 66 percent, indicating that cost discipline remains strong even amid heavy AI-related R&D and capital investment.
• The AI flywheel remains intact: CEO Hock Tan emphasized that AI networking already represents ~40 percent of AI revenue, and that three hyperscale customers plan to deploy 1 million-node custom AI accelerator clusters by 2027, underpinning confident long-term growth.
• Stock reaction and sentiment: Despite beating expectations, AVGO shares fell ~2–3 percent after hours, illustrating a “sell-the-news” dynamic. The stock remains up roughly 12 percent YTD, and J.P. Morgan recently reiterated an Overweight rating with a $250 price target, citing sustained AI traction and robust free cash flow.
• Valuation considerations: Trading near all-time highs, AVGO’s forward P/E (FY 2025) sits above 40×, reflecting the market’s willingness to pay for AI leverage—but also posing risks if enterprise or handset demand softens. Institutional investors may be wary of limited upside if AI spending growth slows.
In conclusion, Broadcom’s 2Q25 results reinforce its position as a bellwether in AI infrastructure. Record revenue, strong AI segment growth, and a resilient margin profile argue for continued outperformance—especially if macro conditions remain stable. However, with shares trading near peak valuations and guidance already well anticipated, investors should be prepared for potential volatility if AI spend falters or non-AI silicon markets weaken.
A pullback toward the low-$250 range could offer an attractive entry point. Over the next 12 months, if Broadcom continues to ramp its Tomahawk 6 deployments, convert VMware customers to subscription models, and demonstrate further margin expansion, there is a path to mid-$290s (high-teens percentage upside). Accordingly, we recommend a Buy on any meaningful weakness, while monitoring design-win announcements, AI networking trends, and macro demand signals.
.gif)
