Oracle CEO Safra Catz May Have Sparked a New Growth Wave for Broadcom Stock

Key Points

• Oracle’s $455 billion cloud backlog could drive demand for Broadcom’s AI accelerators and networking products.

• Broadcom is already seeing solid demand from major hyperscalers.

• Its Tomahawk switches and Jericho routers are essential for networking in huge AI clusters.

• 10 stocks we like better than Broadcom ›

Sometimes the best signal to buy stock in a particular company shows up on another company's earnings call. That's what just happened for semiconductor company Broadcom (NASDAQ: AVGO). Unexpectedly, the true growth potential in this computer networking company was revealed in Oracle's (NYSE: ORCL) first-quarter fiscal 2026 earnings call (for the period ending Aug. 31).

Expanding data center capacity benefits Broadcom

On the recent earnings call, Oracle management highlighted a rapid acceleration in AI infrastructure spending, and that has big implications for the company's suppliers, including Broadcom. Oracle CEO Safra Catz and chairman Larry Ellison unveiled ambitious plans to build global artificial intelligence (AI) infrastructure, supported by $455 billion in remaining performance obligations (RPO), a measure of the backlog of signed contracts -- an increase of 359% on a year-over-year basis.

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Elsewhere, The Wall Street Journal reported that OpenAI signed a five-year, $300 billion deal with Oracle to purchase computing capacity, which will require the latter to rapidly expand its data center footprint.

Such megaprojects will depend on suppliers like Broadcom for the custom accelerators, high-speed Ethernet switches, and optical interconnects (high-speed connections inside and between AI data centers using fiber optic cables).

Since demand far exceeds available data center capacity, Oracle is planning capital expenditures of nearly $35 billion in fiscal 2026, largely for data center equipment. It is also speeding up deployments, which can help it monetize capacity sooner. This means that Broadcom could see faster and steadier demand in the coming years.

Increasing inferencing workloads could benefit Broadcom

Oracle management said it wants the company to dominate the AI inferencing market, where real-time model deployment happens. The company is leveraging its position as the world's largest custodian of private enterprise data by vectorizing (converting data to numbers with algorithms) so it can be understood by AI models.

Clients can then securely connect this data -- contained across Oracle databases and cloud storage -- to leading AI reasoning models like OpenAI's ChatGPT, Alphabet's Gemini, xAI's Grok, and Meta Platform's Llama, all hosted within Oracle Cloud Infrastructure (OCI). This setup moves AI inference closer to where enterprise data already lives.

However, AI inferencing is inherently different from AI model training. While training involves occasional batch-heavy workloads, inferencing runs continuously and requires extremely low latency and high bandwidth for data to be moved within and among different data centers. The increasing proliferation of inferencing workloads is set to drive demand for Broadcom's ultra-fast Ethernet switches, optical interconnects, and custom AI chips.

Broadcom's business is gaining momentum

Broadcom's financial performance in the third quarter of fiscal 2025 (ending Aug. 4) shows its momentum. Revenue grew 22% year over year to $16 billion, while adjusted earnings before interest, taxes, depreciation, and amortization surged 30% year over year to $10.7 billion. The company also reported a record backlog of about $110 billion.

AI remains the primary growth engine. In the third quarter, AI revenue rose 63% year over year to $5.2 billion, with 65% coming from its custom accelerator (XPU) business. This growth was driven by robust demand from its three major hyperscaler clients, which are rapidly expanding their AI infrastructure.

Broadcom has now secured $10 billion in XPU-based AI rack orders from a fourth client. Management now expects AI revenue growth in fiscal 2026 to be faster than in fiscal 2025. With Oracle aggressively expanding data center capacity and ramping up inference workloads, demand for Broadcom's custom accelerators could climb even higher in the years ahead.

Networking is the key challenge for Oracle and Broadcom

Demand for Ethernet-based networking has exploded, as large language models grow more intelligent and AI clusters expand in size. Once these clusters grow beyond 100,000 GPUs or XPUs, ultra-high bandwidth networking becomes crucial to share memory across nodes.

Broadcom's Ethernet-based Tomahawk switches and Jericho Ethernet fabric routers are proving exceptionally efficient in connecting GPUs/XPUs within a rack, across racks in a data center, and even between data centers. Oracle's plan to add more data center regions and run more inference on enterprise data further fits this trend: more nodes, more links, more traffic, and more networking components required to connect them all.

Broadcom has been designing its Ethernet-based networking separately from its accelerators, giving customers the flexibility to choose components best suited to their purposes.

Hyperscalers also prefer Ethernet because it is open source, well-proven, and deeply familiar to architects and engineers building AI data centers. It is also supported by multiple suppliers, which avoids vendor lock-in for clients. Hence, as AI clusters grow larger, demand for Ethernet-based networking is bound to soar in the coming years.

Broadcom's valuation is admittedly elevated

Broadcom trades at 36 times forward earnings, which is definitely not cheap. But with a $110 billion backlog, accelerating demand for its AI-optimized accelerators and Ethernet networking, and Oracle's huge AI build-out set to drive sustained infrastructure spending, the company is positioned for multiyear growth.

Investors with a long-term horizon should consider buying small stakes in Broadcom stock on any pullback.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Oracle. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.