Broadcom Inc.

(NASDAQ Global Select)
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Bullish +65

Broadcom at $375: It Looks Like the Right Time to Add AVGO Shares

Earnings report Financial outlook AI-generated analysis

πŸ“ˆ AVGO shares trade at $360.14, down 27% from the 52-week high of $493.28, while projecting AI revenue to reach $230 billion by fiscal 2028.

πŸ’° Q3 revenue surged 85.5% to $29.59 billion, with non-GAAP EPS of $3.32 beating the $3.24 estimate for the ninth consecutive quarter.

🀝 A long-term TPU deal with Google is expected to generate multi-tens of billions annually, anchoring the 2027 revenue ramp.

⚠️ Gross margins are guided to shrink to 73% in Q4 from 78% a year ago due to memory-heavy XPU costs.

🏭 Concentration risk exists as Broadcom relies on just six major customers for its high-value XPU business.

πŸ“‰ Management described OpenAI's financing situation as 'less clear,' introducing potential downside for the AI accelerator portfolio.

πŸ”‹ The AI ramp depends on external factors including customer site preparation, power availability, and supply chain constraints for wafers and substrates.

🎯 Analyst consensus price target is $531.31, suggesting roughly 47.5% upside from the current trading price of $360.14.

πŸ“Š The stock trades at a forward P/E of 19x and a PEG ratio of 0.361, indicating valuation may be modest relative to growth.

πŸš€ Management projects AI revenue to nearly quadruple from current levels by fiscal 2028, reaching $230 billion.

πŸ“‰ The stock fell 12.59% on the Q2 report day despite a beat, showing that recent earnings have not fully protected share price.

πŸ” Investors are watching the upcoming December results to confirm if the company can deliver the $21.7 billion AI revenue guidance for Q4.

Bullish Signals
  • AVGO reported Q3 revenue of $29.59 billion, an 85.5% year-over-year increase, with non-GAAP EPS of $3.32 beating the consensus estimate of $3.24.
  • The company projects AI revenue to reach $115 billion in fiscal 2027 and $230 billion by fiscal 2028, driven by a massive long-term TPU agreement with Google.
  • Broadcom trades at a forward P/E of 19x and a PEG ratio of 0.361, suggesting the stock is undervalued relative to its projected AI growth trajectory.
  • Management expects to exceed $30 in earnings per share by fiscal 2028, indicating strong confidence in future profitability and scale.
  • Free cash flow of $13.67 billion represents 46% of revenue, highlighting the strength and efficiency of the underlying business model.
Risk Factors
  • Gross margins are guided to shrink to 73% in Q4 from 78% a year ago due to the high memory costs associated with custom AI accelerators (XPUs).
  • The XPU business relies on just six major customers, creating significant concentration risk if any single client reduces demand or faces financial distress.
  • Management noted that OpenAI's financing situation is 'less clear,' introducing uncertainty regarding future orders for the company's AI infrastructure.
  • The execution of the 2027 revenue ramp depends on external factors such as customer site preparation, power availability, and supply chain constraints which Broadcom does not control.
  • The stock fell 12.59% on its Q2 report day despite beating estimates, indicating that recent positive earnings have not yet protected the share price from volatility.
Full Analysis
Broadcom (AVGO) shares are trading at $360.14, approximately 27% below their 52-week high of $493.28, despite projecting massive AI revenue growth. The company reported Q3 revenue of $29.59 billion, an 85.5% increase year-over-year, with non-GAAP EPS of $3.32 beating the consensus estimate of $3.24. This marks the ninth consecutive quarter where Broadcom has exceeded analyst expectations. Analysts project AVGO's AI revenue to reach $115 billion in fiscal 2027 and $230 billion by fiscal 2028, driven largely by a long-term agreement with Google for custom AI accelerators (XPUs). Management expects this deal to anchor multi-tens of billions in annual revenue starting in 2027. The stock currently trades at a forward P/E of 19 and a PEG ratio of 0.361, suggesting valuation remains modest relative to the projected growth trajectory. However, the company faces specific headwinds including shrinking gross margins guided to 73% in Q4 from 78% a year ago due to memory-heavy XPU costs. Concentration risk is highlighted by reliance on just six major XPU customers, with management noting OpenAI's financing situation is 'less clear.' Additionally, the execution of the AI ramp depends on external factors like customer site preparation and supply chain availability for wafers and substrates. Wall Street consensus price targets sit at $531.31, implying roughly 47.5% upside from current levels. The upcoming Q4 earnings report in December will be critical to validating the 2027 revenue ramp and confirming whether gross margins can hold near 73%. Investors are watching closely to see if Broadcom can deliver on its guidance for AI networking and XPU shipments to major clients like Google, Meta, and Anthropic.