As chip giant Broadcom prepares to announce its second fiscal quarter results on June 3, Oppenheimer has released an optimistic preview, expecting the company to deliver a strong performance that beats expectations and raises its outlook, with AI-related business serving as the primary growth engine.
Oppenheimer analyst Rick Schafer noted in the report that Broadcom's revenue in the AI sector has increased by approximately 30% quarter-over-quarter, primarily driven by robust demand for custom ASIC chips and networking products. The company is viewed by the market as the second-largest AI performance hardware manufacturer after Nvidia, leveraging its self-developed XPU and networking solutions to build a unique competitive advantage.
Schafer emphasized that Broadcom has established deep collaborative relationships with several tech giants, including Google, Meta, TikTok USA, Anthropic, and OpenAI. The company's supply commitments extend to 2028, providing high visibility into future orders. Specifically, Anthropic is expected to deploy 1GW of computing power this year, potentially generating $15 to $20 billion in orders, while OpenAI plans to complete 1GW of deployment by fiscal year 2027.
Notably, Broadcom recently signed a multi-year strategic cooperation agreement with OpenAI to jointly design custom AI acceleration chips. The company's management has previously outlined a clear roadmap, projecting annual AI chip revenue to exceed $100 billion by the end of 2027. Currently, the company reports an order backlog of approximately $73 billion and has secured manufacturing capacity for advanced 3nm and 2nm processes.
From a financial perspective, Broadcom demonstrates high profitability. Oppenheimer data shows that the company's gross margin is around 78%, operating margin approximately 66%, and free cash flow margin about 42%. Market expectations for the quarter include earnings per share of $2.40 and revenue of around $22.11 billion. Oppenheimer maintains a buy rating on Broadcom, with a target price set at $450.
However, not all signals are positive. The report notes that OpenAI's planned $18 billion custom chip transaction has encountered financing obstacles, adding uncertainty to this significant revenue stream. Additionally, company insiders have net sold approximately 403,000 shares over the past 90 days, valued at about $133.5 million, including 70,000 shares sold by CEO Tan Hock Eng.
As the earnings release date approaches, investors will closely monitor the actual growth rate of AI revenue, potential upward revisions to third-quarter and full-year guidance, details of new orders, and gross margin trends. If the data aligns with Oppenheimer's optimistic expectations, it could further strengthen the market's revaluation of Broadcom as a core supplier of AI computing infrastructure.
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