Broadcom Earnings: Stock Decline Is an Overreaction to Conservative Guidance

Key Morningstar Metrics for Broadcom

• Fair Value Estimate
  : $650.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Broadcom’s Earnings

Broadcom AVGO reported in-line April-quarter results and good July-quarter guidance. Management maintained its outlook for “more than $100 billion” in artificial intelligence revenue in fiscal 2027. Shares fell 14% after hours, as investors hoped for higher guidance in 2027 and beyond.

Why it matters: We believe Broadcom is guiding conservatively, and see the $100 billion fiscal 2027 target as a sandbag. Management expects to ship capacity for 10 gigawatts of compute in 2027, and we believe it will earn well above $10 billion per gigawatt.

• Anthropic and OpenAI’s XPU ramps look to be focused in 2027 and 2028, making for a relatively softer 2026 (still nearly 200% growth). Apollo and Blackstone are helping finance purchases of Broadcom chips, which could amount to 20 gigawatts of capacity alone in the next two years.
• We model close to $200 billion in AI chip revenue in fiscal 2028. Every sign points to high visibility into massive demand over the next two years. Management isn’t following peer Marvell’s long-term bullish guidance, but we believe a real, immense opportunity exists nonetheless.

The bottom line: We raise our fair value estimate for wide-moat Broadcom to $650 per share from $550. We’re confident in rapid long-term XPU growth, and have grown more constructive on incremental margins from these custom chips. With the selloff reaction, Broadcom remains one of our top picks in semis.

• We view XPUs as gross margin-dilutive but operating margin-accretive, via co-investment from customers. We expect Broadcom to maintain strong operating margins as these chips take up a higher mix. If these chips are actually accretive to existing margins, there’s upside to our forecast.
• Shares trade at 18 times consensus fiscal 2028 earnings after the selloff. We value Broadcom at 25 times our own 2028 earnings estimate, which we see as a fair price for an extremely high-quality company that we expect to continue growing in the high teens through the end of the decade.