Big-Tech Earnings: Google and Meta's Results Support Broadcom's Outlook

She said stop giving this away free (From Profits Run)

Top hyperscaler companies reported earnings in the final week of April, and received a mixed reaction from investors. The day after reporting, Google's parent company, Alphabet (NASDAQ: GOOGL), was the clear winner, rising by a whopping 10%. Amazon.com (NASDAQ: AMZN) took second place, but still rose by less than 1%. Meanwhile, Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) saw significant sell-offs, falling by 4% and 8.5%, respectively.

With the exception of Amazon, there was a clear trend among these names: increased artificial intelligence (AI) capital expenditure forecasts. For semiconductor giant Broadcom (NASDAQ: AVGO), the results of Google and Meta are key to its outlook. These companies partner with Broadcom to develop and deploy custom AI chips. Luckily for Broadcom, Google and Meta’s results and outlook point to good things ahead.

Google: Broadcom’s Top Customer Crushes Earnings as Cloud Growth Soars

Google was the standout among this group, with the firm posting a strong sales beat and massive earnings per share (EPS) beat. The company’s EPS came in at $5.11, nearly double the $2.64 analysts expected.

However, it is important to note that a very large portion of this EPS beat was due to an increase in Google’s “Other Income” line item. The figure more than tripled year over year from $11.2 billion to $37.7 billion. This primarily reflected appreciation in Google’s non-public equity investments in firms like SpaceX and Anthropic.

Nonetheless, Google’s earnings were highly impressive, as the company would have posted a strong beat even if these investments did not appreciate. For Broadcom, Google’s outperformance is key, given that the firm is its largest custom chip partner. This is particularly true, as Google Cloud, the segment from which Broadcom benefits most, stole the show.

Cloud revenues rose by 63% to over $20 billion, by far the company’s fastest growth rate among its various business lines. The company’s cloud backlog nearly doubled in just one quarter to $462 billion. The deployment of tensor processing units (TPUs), the custom chips that Google co-develops with Broadcom, will support much of this backlog. Furthermore, Google will begin selling TPUs to select customers for deployment in their own data centers. This allows it and Broadcom to unlock an alternate source of demand for the chips.

Long story short, Google Cloud is seeing rabid demand, to which Broadcom is directly tied. Additionally, Google expects only around 50% of its cloud backlog to convert into revenue over the next 24 months. This signals demand for Broadcom’s TPUs should extend well beyond the near term.

Meta Exceeds Expectations on Strong Advertising Growth

Meta also reported strong results, beating on sales and EPS even after adjusting for unusual factors. Meta reported revenue growth of 33% YOY, its fastest pace since 2021, and better than its midpoint guidance of 30%.

Broadcom helps Meta develop its Meta Training and Inference Accelerator (MTIA) chips. These chips power Meta’s ranking and recommendation (R&R) models, helping decide what content and advertisements to show users on Meta’s apps.

Meta’s advertising business grew at a clip not seen in years, and MTIA is a significant driver behind the models creating this growth.

Meta will also deploy future versions of MTIA chips to support its generative AI inference workloads. These chips would presumably support AI offerings that are still in the early stages or that Meta has yet to release.

While it's somewhat unclear what these offerings will entail, they represent an emerging source of demand that Broadcom can benefit from.

2027: Google Expects Significant CapEx Increase, Meta Makes Encouraging Statements

Google raised the midpoint of its CapEx guidance for 2026 by 4% to $185 billion. However, this was simply to account for its $4.75 billion acquisition of Intersect, and thus doesn’t provide a clear benefit to Broadcom.

More importantly, Google said “we expect our 2027 CapEx to significantly increase compared to 2026.” This is a very clear positive for Broadcom, showing that its top customer plans to spend more in 2027.

This supports higher demand for TPUs and Broadcom’s AI networking solutions next year.

Meta also raised its CapEx guidance for 2026 by 8% at the midpoint to $135 billion. However, the company notes that this is primarily driven by increased memory chip prices, a dynamic that Broadcom does not meaningfully benefit from.

However, looking further out, Meta made statements that are positive for Broadcom. On Meta’s earnings call, one analyst asked for a preview of Meta’s 2027 CapEx. The company didn't directly answer the question, but Chief Financial Officer Susan Li made a critical remark.

Per Susan Li: “Our experience so far has been that we have continued to underestimate our compute needs, even as we have been ramping capacity significantly as the advances in AI have continued and our teams continue to identify compelling new projects and initiatives, and now too there are very compelling internal use cases. Our expectation is that compute will become even more central to the business going forward.”

This implies that the demand for chips (compute) is on an upward trajectory. Meta has historically underestimated its needs and continues to see new opportunities where it can deploy AI. While this is far from an admission that CapEx will rise further in 2027, it is also far from an admission that it will not.

Broadcom Maintains Its Stalwart Position in AI

Two of Broadcom’s top customers outperformed on sales, with very robust forward-looking signals coming from Google. Google explicitly stated that it expects spending to rise in 2027, while Meta left the door to increased 2027 spending wide open. Overall, these are strong signs for Broadcom going forward, indicating increased demand for its critical AI infrastructure solutions.

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