Broadcom Inc.

NASDAQ Global Select
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Bullish +68

Broadcom stock: Why the AI chipmaker’s growth story is gaining steam

AI-generated analysis

📈 Broadcom's AI semiconductor revenue surged 221% year-over-year in the fiscal third quarter, driven by mass shipments of Ironwood v7 and TPU v8i inference chips to Alphabet and Anthropic.

🚀 The company raised its long-term outlook, forecasting AI revenue to grow from $115 billion in FY27 to $230 billion in FY28, supported by rising demand for custom chips and AI networking.

💰 Fiscal third-quarter total revenue reached $29.6 billion (up 86%), with adjusted EPS increasing 96% to $3.32, exceeding analyst expectations of $3.24.

🤝 Major customer deployments are expanding rapidly, including plans for 10 gigawatts of TPU v8i capacity for Alphabet by FY28 and significant custom chip volumes for OpenAI and Meta.

⚠️ A key risk identified is that AI chip supply may fail to ramp fast enough, potentially forcing customers to delay deployments and crushing the FY27–FY28 AI revenue growth plan.

📉 Overall gross margin declined 210 basis points to 75% in the quarter, partly reflecting the larger contribution from semiconductor revenue which had a margin of 76% compared to 84% for infrastructure software.

🔮 For the fiscal fourth quarter, Broadcom expects revenue to reach $34.8 billion representing 93% year-over-year growth with AI revenue forecast to rise 236% to $21.6 billion.

💡 Analysts note that despite market skepticism, Broadcom is positioned to deploy multi-gigawatt capacity, with operating margins expected to remain above 68% despite pressure on gross margins.

📊 The stock trades below 21 times forward earnings, with some analysts suggesting it offers dip-buying support around $360 and a valuation of 11.5 times FY28 earnings guidance.

Bullish Signals
  • Broadcom's AI semiconductor revenue surged 221% year-over-year in the fiscal third quarter, demonstrating strong demand outpacing supply.
  • The company raised its long-term revenue outlook, projecting AI revenue to reach $115 billion in FY27 and double again to $230 billion in FY28.
  • Fiscal third-quarter adjusted earnings per share increased 96% to $3.32, exceeding analyst expectations of $3.24.
  • Major customer deployments are expanding rapidly, with plans for 10 gigawatts of TPU v8i capacity for Alphabet by FY28 and significant custom chip volumes for OpenAI and Meta through 2028.
  • The company successfully brought the v8i product to market faster than competitor MediaTek despite starting later on the project.
  • Analysts view current share prices as offering dip-buying opportunities, with the stock trading below 21 times forward earnings and operating margins expected to remain above 68%.
Risk Factors
  • A key risk is that AI chip supply may fail to ramp fast enough, potentially forcing customers to delay deployments and crushing the FY27–FY28 AI revenue growth plan.
  • Overall gross margin declined 210 basis points to 75% in the quarter, partly reflecting the larger contribution from lower-margin semiconductor revenue.
  • Future performance depends on the company's ability to expand chip supply while maintaining profitability as semiconductor revenue becomes a larger part of its business.
Full Analysis
Broadcom (AVGO) is experiencing significant growth driven by its artificial intelligence semiconductor business, which surged 221% year-over-year in the fiscal third quarter ended August 2. The company has begun mass shipments of next-generation TPU chips, specifically Ironwood v7 and v8i inference versions, to major clients including Alphabet and Anthropic. This strategic shift positions Broadcom as a key supplier for AI infrastructure, with non-AI semiconductor revenue remaining relatively flat while AI segments drive overall performance. Analysts and the company itself have raised long-term revenue expectations, projecting AI revenue to reach $115 billion in fiscal 2027 and double again to $230 billion in fiscal 2028. The company's fiscal third-quarter total revenue hit $29.6 billion, with adjusted earnings per share increasing 96% to $3.32, exceeding analyst expectations. Despite a decline in overall gross margin to 75% due to the mix shift toward lower-margin semiconductors, the company maintains strong profitability and expects sufficient supply to meet its ambitious fiscal 2028 outlook. Broadcom is securing massive deployment capacity from key partners, with plans to deploy 10 gigawatts of TPU v8i capacity for Alphabet by fiscal 2028 and significant custom chip volumes for OpenAI and Meta through 2028. While the company faces potential risks regarding supply ramp-up speeds that could delay customer deployments, its expanding customer pipeline and strong financial guidance suggest a re-rating from a cyclical chip name to an AI infrastructure compounder. Market skepticism regarding valuation is countered by analysts who view current share prices as offering dip-buying opportunities below 21 times forward earnings.