What’s good for Cisco is good for Broadcom. 3 reasons both stocks are up
Cisco investors weren’t the only ones to gain from the networking company’s big earnings on Wednesday night: Broadcom shareholders also gained. Cisco shares rose 15% to a new record on Thursday after announcing results and guidance that beat Wall Street’s expectations. More importantly, the report highlighted the growing demand for network solutions tied to AI data center deployment. Cisco said it has received $5.3 billion in AI infrastructure and hyperscaler orders so far this year, bringing its expected orders for the fiscal year to $5 billion to $9 billion. These positive sentiments spilled over to Broadcom, which rose more than 5% and also hit a new high. Broadcom is known for designing custom AI chips for hyperscalers like Alphabet and Meta. But it also has a strong networking business that should benefit from this wave of AI spending. In fact, Wells Fargo analysts raised their price target on Broadcom to $545 per share from $430 on Thursday, saying the company’s AI networking momentum is “underappreciated and a bullish source.” “There seems to be a networking supercycle that we’re entering right now,” Cisco CEO Chuck Robbins told Jim Cramer on CNBC Thursday morning, adding that years before the AI boom, many people doubted the future value of networking solutions and hardware. But today, networking equipment is critical to directing traffic in data centers. After reviewing Cisco’s latest earnings and listening to its investor call, here’s key reading for Broadcom, which reports earnings on June 3. 1. Major cloud companies are buying more of Cisco’s networking hardware. Orders for hyperscaler AI infrastructure rose to $1.9 billion in the quarter from $600 million a year ago, Robbins said, citing strong growth in both Cisco’s Silicon One systems and market leader Acacia optics. Cisco’s Silicon One offering provides routing and switching capabilities for AI and networking needs. Cisco has a total of $5.3 billion in hyperscaler orders this year, surpassing previous estimates of $5 billion for fiscal 2026 before the end of the quarter. This year-over-year order increase bodes well for what we’ll see Broadcom report in a few weeks. Demand driving Cisco’s guidance will also work in Broadcom’s favor, as better-than-expected customer demand is likely to spread to all major AI infrastructure companies. 2. The same hyperscalers are being prepared for inference and agentic applications. Inference is what happens when AI models answer questions. Agency AI applications can operate autonomously and perform tasks for their users without assistance. In both scenarios, “the network is incredibly important,” Robbins said, adding that the fast transfer of information requires minimal latency. That bodes well for Broadcom, which reported a more than 60% increase in network revenue last quarter, with AI accounting for a third of its revenue in the fiscal first quarter. Broadcom estimates its AI networking business will reach 40% of total AI revenue in the quarter it reports in June. Broadcom said in its March earnings call that sales of its Tomahawk 6 switch, which launched last June, were on the rise. The Ethernet switching device is the first of its kind with a record speed of 102 terabits per second. “This gap will increase further in 2027 with our next-generation Tomahawk 7 with twice the performance,” said CEO Hock Tan. 3. Companies need to modernize their operations towards artificial intelligence. Cisco cited a study that confirmed 93% of 3,500 global technology enterprise leaders are accelerating network modernization plans on their campuses. This is largely based on AI’s expectation that traffic between these networks will triple in the next three years. “These findings support our belief that we are still at the beginning of a multi-year, multibillion-dollar campus renewal opportunity,” Robbins said. Broadcom also sells networking equipment for businesses that will benefit from this revamp. In summary, we continue to be bullish on Broadcom after this year’s historic rise. “Broadcom has been one of the biggest winners of all time,” Jim Cramer said at the April Meeting. The stock has consistently hit new highs this year, prompting us to correct what had become an oversized position in the portfolio last month. With the stock up over 85% in the past year and over 25% year to date, Club has a 2 hold equivalent rating on the stock, meaning we’d wait for a significant pullback before pushing the stock higher again. (Jim Cramer’s Charitable Trust is long AVGO. See here for a full list of stocks.) 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