Semiconductors · #27 in the Retail 100

Broadcom

AVGO

Our rating: buyhigh conviction
12-month target: $452.59 +40.5%
Expected vs. S&P 500: +22.8 ptsSee the math
Next earnings: Dec 9In 34 daysEarnings calls page ↗

Broadcom has agreed to finance up to $42B of Anthropic's chip leases, so part of its AI boom rests on money it arranges for its own customer.

Summary

Broadcom designs custom AI chips for six large customers led by Google, along with the network switches that connect them and VMware software. AI chip sales more than tripled last quarter. The stock has been weighed down by Google adding other chip designers and by Broadcom financing Anthropic, one of its own customers. It depends on those customers paying for their chips with their own money, not Broadcom's.

$332.09

-$30.46 (-8.40%)Past year

What Broadcom does

Broadcom helps the largest tech companies design their own AI chips instead of buying NVIDIA's, and makes the networking chips that connect them. It also owns VMware.^{1,3,21,22,24,25,26}

What it sells

Custom AI chips56% of revenue, Q3 FY2026
Chips co-designed with Google and other AI companies for their own models, plus the networking chips that link thousands of them.
VMware software30% of revenue, Q3 FY2026
Lets a company split each physical server into many virtual ones. A steady, high-margin source of cash.
Other chips14% of revenue, Q3 FY2026
Wi-Fi and radio chips for phones, broadband and set-top box chips. Growing about 5% a year.

Who buys it

A handful of giants. Google, Meta, OpenAI and Anthropic buy its AI chips, Apple buys its wireless parts, and large companies license VMware. The top five customers were about 40% of FY2025 revenue.

Where you've seen it

The Wi-Fi and radio chips in an iPhone, and the chips inside many cable and satellite TV boxes.

The backstory

The largest AI labs want chips built for their own models, and Broadcom designs them. The catch is that these buyers need far more computing power than their cash can pay for upfront. So Broadcom has reserved supply and now helps arrange financing, including lender-funded leases it partly guarantees and loans to Anthropic funded by outside debt.

How the business makes money

Why Broadcom's custom AI chips throw off so much cash^1,2,3,11,21

Step 1
Google and other AI giants want chips built for their own models instead of NVIDIA's, so they co-design them with Broadcom over many generations.
Step 2
Orders come in gigawatts of computing, and Broadcom also sells the switches linking the chips. Its CEO expects $20B to $30B of revenue per gigawatt.
Step 3
Staff and research costs grow slowly, so Broadcom keeps about 68¢ of each $1 of sales after running the business.
Step 4
VMware software adds steady cash: $8.8B of sales last quarter, with about 84¢ of each $1 kept as profit.
What shareholders get
Cash left over hit a record $13.7B last quarter. It pays dividends and buys back stock, so each remaining share owns more of the profit.

Advantages

Leader in custom AI chips

Major advantage

Broadcom's stronghold. It holds over 70% of the custom AI chip market and a Google TPU deal through 2031, though Google added MediaTek for cheaper chips and Marvell in August.^6,7,15

Network switches for AI clusters

Strong advantage

Strong and widely used. Broadcom just finished designing Tomahawk 7, the first 200-terabit Ethernet switch chip.³

VMware software cash

Strong advantage

Strong and steady. VMware software revenue was $8.8B last quarter, with an 84% operating margin, cash that cushions swings in chip orders.^1,3

What's changing

Broadcom now helps finance its customers' chips

Broadcom now helps finance its customers' chips. In June it launched a financing platform whose first $35B pays for over a gigawatt of computing for Anthropic, and Broadcom guarantees those leases. Anthropic's IPO filing showed Broadcom will also lend it money, tying more of Broadcom's risk to one customer. On October 2 the stock closed 28% below its June high.^{8,9,11,21,22,23}

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with Broadcom
Broadcomthis stock	$1.59T	Broadcom helps the largest tech companies design their own AI chips instead of buying NVIDIA's, and makes the networking chips that connect them. It also owns VMware.
NVIDIANVDA	$5.31T	Sells complete AI systems: its own GPUs, networking and software, to everyone.	NVIDIA sells one chip to all; Broadcom builds each giant its own, at smaller scale.¹⁶
Marvell TechnologyMRVL	$205.00B	Designs custom chips and data center networking parts, like Broadcom at smaller scale.	Marvell is far smaller, but it won a Google deal in August.^7,14,15
MediaTek (Taiwan-listed)private	—	Taiwanese phone-chip designer now building cheaper versions of Google's TPU AI chips.	MediaTek undercuts Broadcom on price for Google's chips, threatening a key account.⁷

Leadership

Who runs the company, and how the stock has done under the CEO.

AVGO +494.1%S&P 500 +61.8%Price change since Nov 2021, the earliest data available · log scale

20222023202420252026

Hock E. TanPresident and CEO20 yrs, since 2006

Amie ThuenerCFO4 mo

Charlie B. KawwasPresident, Semiconductor Solutions Group4.2 yrs

Wall Street on Tan: PositiveMacquarie upgraded the stock to Buy, citing growth at the six companies Broadcom designs custom AI chips for. Cantor raised its price target to $600 because signed orders make future sales easier to predict.^L5,L6,L7

Leadership sources (7) · researched Oct 2026

L1Avago Technologies Form F-4/A (Hock E. Tan, President and Chief Executive Officer since March 2006) · Avago Technologies / SEC, 2006-11-15
L2Broadcom swipes Alphabet CAO for CFO · CFO Dive, 2026-04-03
L3Broadcom Announces Planned Chief Financial Officer Transition · Broadcom, 2026-04-02
L4Broadcom Inc. Form 8-K (Kawwas named President of Semiconductor Solutions Group) · Broadcom / SEC, 2022-07-11
L5Analysts set Broadcom stock price target · Finbold, 2026-09-03
L6Broadcom Shares Rise 2.9% As Analyst Sets Jaw-Dropping $600 Price Target After Earnings Amid AI Boom · International Business Times Australia, 2026-09-08
L7Truist lowers Broadcom target to $520, keeps Buy after fiscal Q3 2026 · Yonhap InfoMax via StockHub, 2026-09-04

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Will Broadcom's AI chip sales reach the $115B it forecasts for fiscal 2027, paid for by customers rather than by financing Broadcom arranges or guarantees?^{1,2,3,6,9,10,11,17,21,22}

Bull case: why buyers buy

If the six customers build on schedule, AI sales double in fiscal 2027 and earnings beat analysts' forecasts, which sit below management's own fiscal 2028 target.

Demand is bigger than the forecast. Management raised its fiscal 2027 AI forecast from over $100B and says demand exceeds it, with supply already secured.
Management sees more profit than analysts do. CEO Hock Tan targets more than $30 a share in fiscal 2028, above the $27.39 analysts expected.
The biggest AI buyers have long build plans. Google, Anthropic, OpenAI and Meta have each laid out multi-gigawatt plans through 2028.
Broadcom keeps more of each sale as profit. Adjusted operating margin rose 2.4 points to 67.9%, even as lower-margin chips grew.

Bear case: why sellers sell

If one large customer slows or shifts work elsewhere, the forecast misses, and Broadcom's loans and lease guarantees for Anthropic leave it exposed to the same customer twice.

Sales depend on fewer customers. The top five now make up about 55% of revenue, up from about 40% a year earlier.
Google is spreading its chip work around. Macquarie expects Broadcom's share of Google's AI chips to fall from about 95% in 2026 to 65% by 2028.
Broadcom is now financing its own customer. Its Anthropic loan relies on about $60B of debt that its banks and Blackstone are raising.
Memory is squeezing gross margin. It fell to 75% as chips carry more purchased memory, and Broadcom expects about 73% next quarter.

Where Delphi landsbuyWe think the bull case is more likely than today's price assumes.See why

What to watch

The numbers that will settle the debate.

AI chip sales▲ improving

$16.7B last quarter, more than triple a year ago, with $21.7B expected this quarter^1,3

Shows whether the $115B fiscal 2027 forecast is on track, which needs about $29B a quarter.

Top five customers' share of revenue▼ worsening

About 55%, up from about 40% a year ago^9,21

Shows how much one customer slowing would hurt.

Gross margin▼ worsening

75% last quarter, down 2.1 points from the quarter before, with about 73% expected³

Shows how much profit each AI chip sale keeps after memory and other parts.

Next earnings report

Dec 9

In 34 days

Earnings calls page ↗

Expected earnings per share: $3.79
Expected revenue: —

What to listen for: Whether AI sales reach $21.7B, and whether management repeats its $115B forecast for fiscal 2027 with gross margin near 73%.^1,18

What would prove this wrong

✕AI revenue this quarter falls short of the $21.7B forecast.
✕Google shifts TPU work to MediaTek or Marvell faster than expected.
✕Anthropic or OpenAI delays or cuts its gigawatt deployment plans.
✕Anthropic misses lease payments and Broadcom has to pay under its guarantee to the lenders.
✕Operating margin falls well below 66% as chips become a larger share.

Our ratingBuyHigh convictionas of Nov 2 close, $322.23 · what ratings mean

Analysts expect earnings to grow about 42% next year and the stock trades below its five-year norm, so growth should outweigh the risk of relying on few customers.

12-month target: $452.59 (+40.5%)
Plus dividend: +0.8%
S&P 500, same method, with dividends: +18.5%
Expected vs the market: +22.8 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $322.23

Target $452.59

bull case30% likely

$556.13 +73%

All six customers build on schedule, AI sales beat $115B in fiscal 2027, and fiscal 2028 earnings pass Tan's $30 target.

$28.83 earnings per share × 19.3 = $556.13

base case45% likely

$452.07 +40%

AI sales land near $115B in fiscal 2027, and fiscal 2028 earnings match analyst forecasts, with gross margin near 73%.

$26.72 earnings per share × 16.9 = $452.07

bear case25% likely

$329.28 +2%

Google moves more work to MediaTek or an AI lab delays its build, so AI sales fall short and fiscal 2028 earnings land near $25.

$25.40 earnings per share × 13 = $329.28

Why these odds: Fiscal 2027 estimates slipped from $19.46 to $19.39 in 90 days, with 27 cuts and 12 raises last month, and recent beats were small, 1% to 4%. But management's fiscal 2028 targets exceed analysts' forecasts.

How the prices are built: Wall Street expects earnings per share of $26.72 for the year starting a year from now (analysts range from $24.08 to $30.93). Today the stock trades at 17.2 times next year's earnings per share; its five-year middle is 24.7. Because earnings per share is forecast to grow fast, valuations are cut 11%, since fast growth rarely keeps its price.^{1,17,18,19,20,21}

What tests the call: Fiscal Q4 2026 earnings and the first full fiscal 2027 outlook (Dec 9)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 5; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $322.23, Broadcom is priced about like the average stock

Broadcom trades at 17 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is below its five-year middle of 25.

Analysts expect earnings to grow about 43% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. The price assumes Broadcom's earnings grow roughly in line with forecasts, with no premium for doing better.

Broadcom multiple: 17×
S&P 500 multiple: 19×
Base case: +40%
Bear case: +2%

Last earnings

FQ3 2026 results, reported Sep 2

AI chip revenue rose 221% to $16.7B, and Broadcom raised its fiscal 2027 AI forecast to $115B and set $230B for fiscal 2028.^1,2,3,4,5,17

Reported Sep 2	Expected	Actual	Difference
Earnings per share	$3.16	$3.32	+5.1%
Revenue	—	—	—

Beat expectations in 6 of the last 6 quarters

Stock reaction: Down as much as 6.3% the next morning (September 3)

Why the stock moved

Down: fiscal Q4 revenue guidance of $34.8B was below the roughly $35.05B analysts expected.
Down: the beat was small for a stock this tied to AI; earnings topped estimates by about 3%.
Down: gross margin is guided to about 73% because chips carry more purchased memory.
Offset: the fiscal 2027 and 2028 AI forecasts were above what analysts had modeled.

What it means for the stock: Strengthened the long-term forecast but raised the stakes. The stock now depends on six customers building on schedule through 2028.