Broadcom’s sideways trade puts focus on AI chips and VMware cash flow

Broadcom’s shares have stayed under pressure despite a strong earnings report. In June, FY2026 second-quarter revenue grew 48% year-over-year, AI semiconductor revenue grew 143% year-over-year, and AI revenue growth guidance for the next quarter further exceeded 200%. The pullback reflected investor disappointment that management maintained its FY2027 AI semiconductor revenue target of over $100 billion without offering more aggressive guidance for new customers beyond Google.

Google’s TPU program remains the core near-term driver, while MediaTek’s entry into the supply chain has raised concerns about share loss. Morgan Stanley believes Broadcom is still likely to maintain an approximate 80% TPU share in the long run. New custom chip programs at Meta and OpenAI could expand the growth runway, but timing remains uncertain, with high-volume production for OpenAI potentially not arriving until the second half of 2027.

AI networking is another important source of upside. Broadcom leads the AI Ethernet switch chip market, with J.P. Morgan estimating its share at approximately 70%. Tomahawk 6 offers single-chip switching capacity of 102.4 Tbps, and demand currently exceeds supply as clusters expand and networks move from 800G to 1.6T. VMware adds stability, with Infrastructure Software revenue in the second quarter at $7.18 billion, up 9% year-over-year.