Broadcom’s stock pops on mystery $10 billion AI customer

Broadcom reported fiscal third-quarter earnings that beat expectations and provided robust guidance for the current quarter. The stock rose in extended trading after the company said it had secured $10 billion in orders from a new client for custom chips.

Here's how the chipmaker did versus LSEG consensus estimates:

Broadcom said it expects $17.4 billion in fourth-quarter revenue, higher than the $17.02 billion expected by Wall Street analysts. Revenue in the third quarter rose 22% on an annual basis. 

The company reported net income of $4.14 billion, or 85 cents per share, after recording a net loss a year ago of $1.88 billion, or 40 cents per share. The loss in the year-ago period was due to a one-time tax provision of $4.5 billion that resulted from the company transferring intellectual property to the U.S.

Broadcom develops custom chips for Google and other cloud companies, in addition to networking parts and software needed to tie thousands of artificial intelligence chips together. 

Broadcom shares are up 32% for the year as of Thursday's close and have almost doubled over the past 12 months, lifting the company's market cap past $1.4 trillion.

Investors are optimistic that the company's custom processors may in the coming years threaten Nvidia's dominant market share in AI chips. In March, Broadcom CEO Hock Tan said the company was developing new AI chips with three large cloud customers, and said he expected AI growth to continue through next year. 

Tan said on a call with analysts that Broadcom had secured $10 billion in orders for its custom AI chips, which it calls XPUs, from a fourth customer.

"One of these prospects released production orders to Broadcom, and we have accordingly characterized them as a qualified customer for XPUs," Tan said. He added that the large order increased Broadcom's forecast for AI revenue next year.

"We will ship pretty strongly beginning 2026," Tan said.

Tan attributed the company's third-quarter revenue growth to its custom AI accelerators, networking parts and its VMware software. AI revenue jumped 63% during the period to $5.2 billion, beating the company's prior prediction of $5.1 billion.

Tan said he expects AI revenue to reach $6.2 billion this quarter.

The company said its chip sales, reported as semiconductor solutions, rose 57% to $9.17 billion. Revenue in Broadcom's infrastructure software business, which includes VMWare, rose 43% to $6.79 billion.