The Custom Chip Kingpin With a Networking Moat No One Is Talking About
Broadcom spent years building Google's custom AI chips. Now it's selling the networking gear that ties entire AI data centers together.
Sticky by design
Broadcom runs two revenue engines, and only one is misfiring. The semiconductor solutions division generated $15.1B in Q2, clearing estimates, as AI revenue doubled year-over-year to $10.8B.
CEO Hock Tan expects AI semiconductor revenue to grow over 200% year-over-year in Q3, hitting $16B. Alphabet's freshly announced $80B equity raise earmarked for AI hardware suggests that demand isn't a blip.
The networking business is the part of this story that tends to get buried. Broadcom holds ~70% of the data-center switching and routing market through its Tomahawk Ethernet switching chips, which control high-speed, low-latency data movement between servers at scale.
J.P. Morgan analyst Harlan Sur describes very high barriers to entry built around that franchise, driven by an aggressive two-year cadence that doubles switching throughput with each generation. Sur estimates Broadcom's AI networking revenue could more than double to at least $45B in fiscal 2027, making up ~28% of total AI revenue.
"Very few competitors have the R&D scale or IP to match the cadence and capabilities of Broadcom's networking silicon franchises," he wrote. Broadcom has co-developed Google's tensor processing units for more than a decade, with Anthropic now also deploying those chips in select data centers.
The case, plainly
The Q2 report had a genuine weak spot. Enterprise software posted $7.18B in revenue, short of the $7.32B analysts expected, with infrastructure software growing just 9% year-over-year.
Software growth remains a weak spot, and the stock already reflects high expectations. Even so, the investment case doesn't depend on a single quarter of software results. It rests on years of deep ties with the world's largest cloud providers and a networking business with a significant head start.
Nvidia CEO Jensen Huang called Marvell "the next trillion-dollar company" at Computex this week, sending shares up ~33% in a single session, and his framing pointed directly at connectivity as the AI bottleneck — which happens to be the market Broadcom already owns.
Broadcom shares are up ~40% year-to-date through Wednesday's close, outpacing the Nasdaq's 16% gain by a wide margin. Q3 guidance of ~$29.4B topped Wall Street's consensus of $28.54B, a signal that the custom AI chip cycle hasn't peaked.
