TLDR
- Broadcom stock surged 10% Monday as Google’s AI success boosted supplier confidence
- The company secured over $10 billion in new AI chip orders from a major customer
- Third quarter revenue hit a record $16 billion with AI revenue accelerating 63% to $5.2 billion
- Google suppliers including Lumentum and Celestica also posted double-digit gains
- Management guided fourth quarter revenue to $17.4 billion, showing continued momentum
Broadcom shares jumped to $368.58 Monday in one of the stock’s strongest trading sessions this year. The rally came as investors connected dots between Google’s AI advances and the semiconductor company’s strategic partnerships.
The stock climbed 10% as Google parent Alphabet gained 5% on growing confidence in its Gemini AI model. Other Google suppliers joined the rally, with Lumentum up 13.5% and Celestica rising 12%.
Broadcom has partnered with Google since 2016 to develop Tensor Processing Units. These custom AI chips now span seven generations. Google’s Gemini 3 model trains primarily on TPUs, giving the tech giant potential cost advantages in AI processing.
Third quarter results showed total revenue reaching $16 billion, up 22% year-over-year. But AI revenue grew much faster at 63%, hitting $5.2 billion. This growth rate highlights how AI has become the company’s primary driver.
Management disclosed a major customer placed over $10 billion in new AI chip orders. The company didn’t name the customer, but orders this size typically come from hyperscale cloud providers. This single commitment represents more than 60% of the entire third quarter’s AI revenue.
Custom Chip Strategy Pays Off
Broadcom focuses on custom accelerators rather than merchant chips sold to multiple customers. This approach targets large tech companies willing to invest in proprietary designs for performance advantages.
Custom chips require substantial engineering resources upfront but generate higher margins. Once companies invest millions in custom development, switching costs create predictable multi-year revenue streams.
CEO Hock Tan said customer investments in AI infrastructure remain strong. He indicated spending patterns suggest sustained growth into fiscal 2026. The comments point to a multi-year cycle rather than a temporary surge.
Melius analyst Ben Reitzes called Google’s TPU “the most proven AI chip” outside Nvidia’s GPU lineup. He said the early decision to develop custom silicon is now delivering returns for both Broadcom’s AI revenues and Google Cloud growth.
Financial Performance Exceeds Targets
Adjusted EBITDA climbed 30% to $10.7 billion during the quarter. The margin expansion reflects operating leverage as the business scales and favorable economics from custom chip work.
Free cash flow reached a record $7 billion. This gives management flexibility to fund research, pursue acquisitions, or return capital to shareholders.
Fourth quarter revenue guidance came in at $17.4 billion. The forecast represents sequential growth from the third quarter’s record performance. Management expects continued strength in custom accelerators and networking equipment for data centers.
The stock has more than doubled this year and now trades near its 52-week high of $386.48. Trading volume Monday exceeded typical levels as investors reacted to the AI momentum.
Mizuho analyst Jordan Klein noted trading patterns show rotation into Google from Microsoft, Nvidia, Meta, and Amazon. He referenced growing online commentary about Gemini 3’s capabilities versus competing models like Claude and GPT.
The market appears to be reassessing supplier relationships in AI infrastructure. Broadcom’s partnership with Google positions the company to benefit from the search giant’s vertical integration strategy. The $10 billion order provides visibility into future quarters as AI deployments scale across hyperscale customers.
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