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Broadcom (Nasdaq: AVGO) reported its quarterly results that continued to outpace market expectations. The company is riding high on the demand for AI chips. Its stock has climbed more than 30% since the start of the year.

Broadcom’s Financials

For the third quarter of the year, Broadcom’s revenues grew 22% to $15.96 billion, ahead of the Street’s forecast of $15.83 billion. EPS of $1.69 was also ahead of the market’s forecast of $1.65.

By segment, its semiconductor solutions business grew 57% to $9.2. Within the segment, its AI revenue grew 63% to over $5.2 billion driven by the growing demand for AI accelerators. Revenue from the infrastructure software business, which includes VMWare, grew 43% to $6.79 billion.

For the fourth quarter, Broadcom expects revenues of $17.4 billion, ahead of the $17 billion expected by analysts. Broadcom expects AI semiconductor revenue to grow to $6.2 billion in the current quarter, delivering the 11^th consecutive quarter of growth.

Broadcom’s NVIDIA Competition

Broadcom is pressing forward on competing with NVIDIA’s AI chip market. Earlier this quarter, it unveiled a new Ethernet switch called the Tomahawk Ultra. The Ethernet switch has been designed for high-performance computing (HPC) and AI workloads and claims to deliver industry-leading ultra-low latency, massive throughput, and lossless networking.

Tomahawk Ultra will control the data flowing across multiple chips that sit close together inside a data center. It competes with NVIDIA’s NVLink Switch chip, but it is expected to be able to tie together four times the number of chips. Additionally, instead of using a proprietary protocol to move the data, Tomahawk Ultra uses a faster version of the ethernet. By ensuring that chips that are close to each other can communicate with each other quickly, developers can accelerate the computing horsepower necessary for AI.

Broadcom does not compete directly with NVIDIA in AI chips. Unlike NVIDIA which sells GPUS that are meant for general computing tasks, Broadcom focuses on application-specific integrated circuits (ASICs), or custom processors designed to perform specific tasks. Due to their specialized nature, the ASICs are more efficient and powerful while handling AI workloads.

However, as customers are looking to reduce their dependence on NVIDIA, Broadcom has managed to secure four contracts that utilize its designs to manufacture custom AI chips. Two of these customers are expected to release their chips this year. While NVIDIA may remain the market leader for worldwide GPU sales, Broadcom will continue to make inroads into the AI chip market with its custom chips.

The market is impressed with Broadcom’s performance. Its stock is currently trading at $302.39 with a market capitalization of $1.4 trillion. It was trading at a 52-week low level of $317.35 earlier this month and has climbed from the 52-week low of $134.90 in September last year.

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