Broadcom perhaps came up short of true 'market expectations' with its latest outlook, though one analyst thinks management may be taking a conservative stance on its potential

Broadcom sees an expanding market for its custom chips.

Broadcom says the market for its custom chips is expanding, but investors wanted to see that potential better reflected in near-term numbers.

A big nitpick from Broadcom's (AVGO) latest earnings report was its guidance. The company expects revenue to reach $34.8 billion in the October quarter, above the $34.7 billion expected from analysts tracked by FactSet. But, according to J.P. Morgan analyst Harlan Sur, "market expectations" were actually a bit higher than that.

Broadcom CEO Hock Tan said on the company's earnings call Wednesday afternoon that the company has secured enough supply to double its artificial-intelligence revenue outlook to $115 billion for the new fiscal year, which kicks off in November. Demand for Broadcom's products "exceeds this outlook," he said, and the company is focused on improving supply. Tan said AI-chip revenue is expected to double again to $230 billion in the following fiscal year.

While the outlook for $115 billion was below Sur's expectations, management's forecast includes "conservative assumptions" for supply, component availability and timing of customer deployments. Sur sees "potential for upside as supply availability improves and/or deployments accelerate," he said in a note to clients.

He also noted that Broadcom's commentary about its diversifying customer base for custom chips and networking points to "robust growth" when looking two fiscal years out.

Broadcom's stock was down 5.3% in Thursday morning action.

For analysts at Morgan Stanley, led by Joseph Moore, Broadcom's results were "impressive" but highlighted some challenges for the stock, including worries about the company's position as the dominant partner with Google (GOOGL) (GOOG) for its tensor processing units, a type of custom chip.

But Sur said Broadcom's work with Google's TPUs "is very much intact," with revenues there expected to grow and upcoming generations on track to ramp up. In his view, Broadcom will "retain at least two-thirds share" of the market for TPUs.

Cantor Fitzgerald analysts led by C.J. Muse were also impressed by the report, noting that while they understand investors' concerns about the current macroeconomic environment and the potential for rising debt to hit spending on AI, they also see the potential for accelerated growth in 2028.

-Nora Redmond -Britney Nguyen