Broadcom expects $4.4 billion in AI revenue in Q2 FY25

In a recent report, Broadcom showcased significant growth in its AI-related revenue, highlighting its impressive performance in the first quarter of fiscal year 2025. The company managed to exceed expectations with a remarkable free cash flow (FCF) of $6.0 billion, marking a year-on-year increase of 28%. This surge in revenue comes amid rising AI spending across various industries, indicating that Broadcom is positioned to capture a significant share of the increasing demand for AI infrastructure driven by hyperscalers investing in AI XPUs and connectivity solutions. Looking ahead, Broadcom's forecasts for the second quarter of FY25 remain optimistic, with AI semiconductor revenue projected to reach approximately $4.4 billion. This anticipation stems from the rising necessity of Broadcom's technologies, which have become integral to major cloud and AI players. The company's established partnerships and its balanced portfolio of high-margin software and AI-driven hardware further solidify its position in this competitive landscape. Despite potential risks, such as Apple's shift to in-house chip development, analysts maintain that Broadcom's ongoing AI momentum will counterbalance any revenue loss. The company's solid performance trajectory supports its current valuation, with expectations of adjusted EBITDA margins remaining high. The stock trades at a PEG ratio of 1.31 based on a forward price-to-earnings ratio of 28.7, suggesting that while the valuation might seem premium, the growth potential is compelling. As Broadcom continues to push its revenue growth while maintaining margins, concerns over insider sales have been raised, yet this should not be a deterrent for investors. If the company continues to execute effectively, the focus on revenue and margin expansion will likely outweigh any short-term apprehensions from these sales. With EPS expected to rise to $9.12 in FY2027 and projections of stock trading above $235 in the short term, the long-term outlook for Broadcom remains positive as the demand for AI technologies continues to escalate.