Broadcom's stock trades roughly 20% below the all-time high it set at the end of May, even as Chief Executive Hock Tan projects the company's AI chip unit will top $100 billion in revenue in 2027. On August 6 the company also rolled out new VMware security and networking upgrades, a sign the software business is expanding alongside the chip story.
Broadcom's custom AI chip business generated $10.8 billion in revenue in the second quarter alone, up 143% year over year. Chief Executive Hock Tan has told investors the unit will top $100 billion in revenue in 2027.
Yet the stock trades roughly 20% below the all-time high it set at the end of May, leaving investors to weigh a fast-growing chip story against a market that has already pulled back once this year.
Software business keeps pace with the chip boom
On August 6, Broadcom announced new VMware vDefend and Avi Load Balancer capabilities. The update includes vDefend SSP 5.2, vDefend 9.1.1, Avi Load Balancer 32.1.4, and a vACT 3.0 migration tool, and the releases add native API protection, on-premises malware sandboxing, and full air-gapped support.
Broadcom says Distributed Firewall throughput can now reach up to 75Gbps per 100G NIC server, a 241% increase, scaling to 75Tbps across a VMware Cloud Foundation instance. Avi Load Balancer throughput per controller can climb to 12.25Tbps as well.
A new two-node deployment model also cuts the hardware needed to run vDefend by as much as 33%. The company is pitching the update as a response to AI-fueled cyberattacks, giving enterprises a reason to expand their VMware footprint even as chip demand grabs the spotlight.
Alphabet and Meta anchor a concentrated customer base
Alphabet is currently the primary buyer of Broadcom's custom chips, though Meta Platforms and other major clients are expected to place larger orders once 2027 arrives. Broadcom has already guided for its AI chip business to grow more than 200% in the current quarter.
Total company revenue rose 48% year over year to $22.2 billion in the second quarter. Adjusted earnings per share climbed 54% to $2.44. Free cash flow reached $10.3 billion, up 60%.
But the concentration cuts both ways: Meta's agreement runs through 2029 and Alphabet's through 2031, so any disruption to those relationships would ripple through the stock quickly. That risk helps explain why shares fell sharply after Broadcom's last earnings report despite results and guidance that pointed to accelerating AI chip sales.
Hedge funds trim positions, short sellers stay away
Hedge fund ownership slipped from 202 funds to 173 in the most recent quarter, a pullback that suggests some institutional trimming even as the AI chip narrative builds. Short interest, however, sits at just 1.47% of float, indicating little organized betting against the stock. Broadcom trades at a forward price-to-earnings ratio of 22.88, a multiple that assumes solid but not extreme near-term growth.
Source: Insider Monkey
Trading involves risk.
Risk Disclaimer
