Broadcom Soars Ahead of Q2 Earnings – Can AI and VMware Keep the Rally Going?

Broadcom ($AVGO) is set to report its fiscal Q2 2025 earnings after the market closes on June 5, and expectations are running high. Wall Street is forecasting revenue of $14.97 billion—up nearly 20% year-over-year—and earnings per share (EPS) of $1.57, marking an impressive 43% YoY jump.

Earlier this year, Broadcom shares dipped to around $138 in April due to tariff fears and macroeconomic headwinds. But the recovery has been nothing short of spectacular. In just two months, AVGO has rallied more than 70%, including a 3.27%+ gain on June 3 alone—pushing the stock to new all-time highs and lifting its market cap to $1.21 trillion.

AI Chip Growth: Can the Momentum Last?

Chips are still Broadcom’s core business, particularly its custom ASICs and Ethernet networking solutions. The AI narrative remains strong, but analysts see short-term growth as more tempered than explosive.

Morgan Stanley’s Joseph Moore highlighted that Google continues to drive most of Broadcom’s ASIC revenue in 2025, with Meta and ByteDance also contributing. But since these are already-mature customers, and much of that growth is priced in, he sees ASIC growth this quarter as “moderate.”

Meanwhile, J.P. Morgan’s Harlan Sur is more upbeat, pointing to future products like the TPUv6 3nm ASIC and the new Tomahawk 6 switch platform as key drivers.

On June 3, Broadcom officially launched Tomahawk 6—a next-generation Ethernet switch chip offering 102.4 Tbps of bandwidth, doubling the performance of its predecessor. Built on TSMC’s 3nm process and based on open standards, it's specifically designed for AI clusters. This is seen as a direct challenge to Nvidia’s more closed networking ecosystem.

That launch alone added over 3% to the stock, reinforcing investor confidence that Broadcom isn’t trying to beat Nvidia at GPUs—but is instead carving out a critical role in AI networking infrastructure with more open, efficient alternatives.

The key question: Can this AI-driven growth offset expected softness in legacy segments like broadband and wireless?

Software Segment: Can VMware’s Transition Pay Off?

Broadcom’s second growth pillar is its software division—now largely driven by the VMware acquisition. Since the acquisition, Broadcom has pushed aggressively to convert VMware’s business into a subscription-based model.

The company no longer breaks out VMware-specific figures, but its infrastructure software division (which includes VMware) posted 47% YoY growth last quarter. The primary driver? Bundling.

Instead of selling standalone VMware tools, Broadcom now promotes VMware Cloud Foundation (VCF)—a full-stack bundle with integrated support. CEO Hock Tan revealed that 70% of Broadcom’s top 10,000 customers have already adopted VCF.

These bundled offerings are more expensive than traditional license-based models but could unlock higher margins and more predictable revenue over time. Morgan Stanley called the customer conversion rate “above expectations,” though they did caution that churn risk remains during this transitional phase.

If successful, this “chip + cloud stack” strategy could evolve into a strong competitive moat—especially for enterprise customers looking to streamline their IT vendors.

Market Sentiment and Analyst Views

Broadcom is riding into earnings on a wave of bullish sentiment. In the past week alone, at least six major Wall Street firms have raised their price targets.

Citigroup’s Christopher Danely maintained a Buy rating and hiked his target from $210 to $276, citing strength in Broadcom’s AI segment. He estimates that AI-related products could make up around 30% of total revenue in 2025.

Cantor Fitzgerald echoed that optimism, highlighting growing demand for custom silicon and the ramp-up of Google's TPU v6 and v7p. While Nvidia still dominates the AI chip narrative, Broadcom’s custom silicon for hyperscalers is gaining traction—much like Marvell’s recent growth in the same space.

What to Watch on the Post-Earnings Call

Beyond the headline numbers, investors will be paying close attention to the earnings call. Key topics to watch:

1. Are new AI clients beyond Google scaling faster than expected?

2. Any expansion updates for VMware’s VCF outside the top 10,000 clients?

3. Margin guidance—especially as software becomes a bigger piece of the pie?

4. Performance and outlook for non-AI segments—are they stabilizing or still soft?

Bottom Line

Broadcom’s setup heading into earnings is compelling. The stock is hitting record highs, the AI momentum is real, and VMware’s transformation could unlock long-term upside. But after a 70% rally in just two months, expectations are sky-high.

Broadcom doesn’t need to post a blowout quarter—but it does need to offer a confident, forward-looking narrative. The integration of semiconductors and enterprise software may just be Broadcom’s edge in the age of AI infrastructure.

With a strong pipeline of AI-centric products and an increasingly sticky software portfolio, Broadcom looks well-positioned to weather tech volatility and continue delivering value to shareholders.