After Earnings, Is Broadcom Stock a Buy, a Sell, or Fairly Valued?

Broadcom released its 2025 fiscal third-quarter report on Sept. 4, 2025. Here’s Morningstar’s take on Broadcom’s earnings and stock.

Key Morningstar Metrics for Broadcom

• Fair Value Estimate: $325.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Broadcom’s Q3 Earnings

Broadcom’s July-quarter revenue rose 22% year over year to $16 billion, with $5.2 billion in artificial intelligence chip revenue rising 63% year over year. Management qualified a fourth custom AI chip customer, which it expects to drive an acceleration in AI revenue growth in fiscal 2026.

Why it matters: AI short- and long-term guidance significantly exceeded our expectations. Management expects up to $10 billion in incremental orders in the second half of fiscal 2026 from the new XPU customer, implying a nearly doubling of total AI revenue next year.

• The $10 billion is wholly incremental to our prior forecast for 60% AI chip growth in fiscal 2026. Management indicated that the $10 billion in orders is just the beginning for its shipments to the new customer, which portends a rapid ramp-up to the level of other large customers, such as Google and Meta.
• We see potential for even further upside for Broadcom’s XPU sales with three additional potential customers in talks with Broadcom. We believe the new $10 billion customer might be OpenAI for an inference chip. We also believe Apple and Arm are part of Broadcom’s custom AI chip pipeline.

The bottom line: We raise our fair value estimate for wide-moat Broadcom to $325 per share, from $225, from a materially increased long-term AI chip growth forecast that includes a revenue ramp for the new XPU customer.

• Our forecast assumes an acceleration of growth in fiscal 2026, with tapering but still substantial growth thereafter. Management hinted at another growth acceleration in fiscal 2027 that would imply significant further upside to our updated forecast and valuation.

Broadcom stock outlook: Broadcom stock is up 20% versus levels prior to earnings, with the market baking in additional AI growth upside resulting from the firm’s new chip customer.

• Shares are up more than 50% for the year to date on AI optimism and growth so far in 2025, significantly outpacing initial estimates.
• The stock trades at all-time highs, which now appears justified to us, given the accelerating AI chip revenue opportunity.
• Shares look fairly valued versus our updated valuation and an aggressive growth runway over the next five years for AI chip revenues.

Fair Value Estimate for Broadcom

With its 3-star rating, we believe Broadcom’s stock is fairly valued compared with our long-term fair value estimate of $325.00. In our view, Broadcom’s primary valuation drivers are the growth of its AI chip business and its ability to extract growth and operating leverage from VMware. We also anticipate continued inorganic growth over the long term.

In software, we believe growth will come primarily through upselling across Broadcom’s base of around 3,000 large customers, between its virtualization (from VMware) mainframe, DevOps, and security businesses. We see VMware as the firm’s primary software growth driver going forward. All in for software, we model 7% midcycle growth, with double-digit VMware growth being partially offset by flatter growth from Broadcom’s legacy software businesses.

We believe Broadcom will continue to exert operating leverage and grow operating expenses below sales growth. Broadcom did a terrific job cutting expenses after acquiring VMware. We expect the combined entity to spend more on sales and marketing than pre-VMware Broadcom but significantly less than stand-alone VMware, as Broadcom focuses its sales and marketing on core customers. Along with higher gross margins incorporating VMware, we project non-GAAP operating margins rising to the mid-60% range in fiscal 2029, from 60% in fiscal 2024.

Read more about Broadcom’s fair value estimate.

Economic Moat Rating

We believe Broadcom holds a wide economic moat, stemming from intangible assets in chip design and switching costs for its software products. Broadcom’s strength in both chips and software allow it to earn terrific accounting and economic profits, and we believe its competitive positioning will allow it to do so, more likely than not, for the next 20 years. While we see most of Broadcom’s businesses as moaty in isolation, we believe its ability to aggregate disparate businesses via acquisitions and run them with terrific efficiency reinforces its wide moat. We see this wide moat evidenced in starkly impressive operating and economic profit margins.

We don’t foresee a new entrant encroaching on Broadcom’s FBAR prowess and believe it would be difficult even for a rival smartphone chip supplier or for Apple itself. FBAR filters are built on nonsilicon materials like aluminum nitride, which raises barriers to entry, in our view, as expertise for nonsilicon materials is harder to find and develop. While mostly a fabless chipmaker, Broadcom keeps its FBAR manufacturing in-house to guard its design secrets. Though we hold concerns over customer concentration and typically see high reliance on large smartphone makers like Apple as erosive to economic moats, we view Broadcom’s focus on the premium end of the market and its large technological lead as moaty. For color, we estimate Broadcom’s average dollar content sold into the iPhone close to $20 (with roughly $10 alone from modules including its FBAR filters), well above our estimates for peers like Skyworks ($12) and Qorvo ($5.)

In software, we view Broadcom’s strategic focus on a small group of large enterprise accounts as key to its moat. The firm is embedded in many different touchpoints in its key software customers, with more than 80% using more than five solutions (including security, DevOps, and mainframe software) per management. By focusing on selling multiple offerings into a concentrated bucket of large customers, we see Broadcom making itself difficult to rip out. We foresee Broadcom capitalizing on cross-selling opportunities between its legacy software and new VMware customer bases, further enhancing its entrenchment. Replacing Broadcom may require finding three or more new vendors that may be unable to replicate its exact capabilities and may require updated workstreams and IT support. We also see the firm’s mainframe and DevOps software as competitively strong, further defending Broadcom against aspiring disruptors. Finally, Broadcom’s core software is almost entirely made up of recurring revenue and subscriptions, which increases stickiness, in our view.

Read more about Broadcom’s economic moat.

Financial Strength

We anticipate Broadcom focusing on strong cash generation. Over the short term, we expect the firm to focus on paying down debt taken out to acquire VMware. Over the long term, we expect the focus to be on growing its dividend and bolting on more acquisitions by which to add to its cash flow. As of October 2024, Broadcom held $9 billion in cash and equivalents versus $68 billion in gross debt, with approximately half of that taken on to finance the 2023 acquisition of VMware. We don’t worry about its debt load, given the long-dated nature of its outstanding notes and its robust cash generation. After Broadcom’s gross debt/adjusted EBITDA ratio rose to 3.5 times after closing on VMware, the firm exited fiscal 2024 with that figure down to 2.1 times. Broadcom consistently generates free cash flow margins above 40%, which we expect to continue. Over the last five years, it’s averaged $14 billion in cash flow annually. With VMware in tow in fiscal 2025, we project $30 billion in free cash flow, with this number rising past $50 billion annually in five years.

Read more about Broadcom’s financial strength.

Risk and Uncertainty

We assign a High Morningstar Uncertainty Rating to Broadcom. As a chipmaker, Broadcom is vulnerable to market supply and demand cycles. Though it has been able to offset cyclicality in recent years with its software exposure and networking strength as a buoy, future cycles may not look similar. It also operates with a high reliance on TSMC for its chip supply, and supply constraints could hamper its ability to ship to customers in the future. Nonetheless, we believe Broadcom is a preferred customer of TSMC and would earn high priority in such a scenario—both for its scale and lengthy relationship.

We also see risk arising from customer concentration and AI: Broadcom is increasingly reliant on its AI accelerator business, which is made up of a handful of high-spending customers, like Google. Changes in spending patterns from these customers and overall AI demand can create fluctuations in Broadcom’s results and affect market sentiment on its stock. We also see medium-term displacement risk in Broadcom’s wireless chip sales into Apple and expect Broadcom to lose its Wi-Fi and Bluetooth chip sales into iPhones and other products as early as 2025. Nevertheless, sales to Apple are a minority of sales compared with the larger networking chip segment, going forward.

We believe there is key-person risk with CEO Hock Tan, who is in his 70s. Tan has been integral to Broadcom’s acquisition and operating strategy, and new management may fail to realize the impressive efficiencies of the current team. Even with Tan at the helm, Broadcom’s reliance on acquisitions is risky. The firm is encountering greater regulatory pushback and seeing the size of targets inflate as the business grows. If Broadcom can’t find sufficient targets or overpays for a deal, it could destroy value.

Finally, on the environmental, social, and governance front, we see little risk for Broadcom, primarily resulting from hard-to-find engineering talent for wireless and networking chips.

Read more about Broadcom’s risk and uncertainty.

AVGO Bulls Say

• Broadcom is a poster child for operating efficiency. It earns excellent operating margins and generates enormous cash flow. It is particularly strong at acquiring companies and trimming excess expenses.
• Broadcom’s networking and wireless chip businesses boast best-of-breed technologies in our view, along with marquee customer relationships with Apple, Google, Cisco, Arista Networks, and others.
• We believe Broadcom will be a significant beneficiary of rising artificial intelligence spending, which we expect to spur significant growth for its networking semiconductor sales.

AVGO Bears Say

• Broadcom’s chip business is prone to cyclicality and customer concentration, with a small handful of wireless and AI customers becoming a rising portion of revenue.
• Broadcom’s software portfolio holds legacy and mature businesses, like virtualization and mainframes, which we think will exhibit moderating growth.
• Broadcom relies heavily on acquisitions to expand its portfolio and may struggle to find deals large enough to move the needle that can pass antitrust scrutiny.

This article was compiled by Isela Meraz.