Broadcom Earnings: Strong AI Guidance Eclipses Our Model and Drives Our Valuation Higher

Key Morningstar Metrics for Broadcom

• Fair Value Estimate: $225
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Broadcom’s Earnings

Broadcom’s AVGO April-quarter revenue rose 20% year over year and 1% sequentially to $15.0 billion, while artificial intelligence chip revenue rose 46% year over year and 9% sequentially to $4.4 billion. July-quarter guidance includes close to 60% year-over-year AI chip revenue growth to $5.1 billion.

Why it matters: AI continues to drive impressive growth for Broadcom. Guidance surpassed our estimates, and management implied close to 60% growth for AI chip sales in fiscal 2026. We now expect Broadcom to hit $50 billion in AI revenue in fiscal 2027, up from $12 billion in fiscal 2024.

• We liked hearing that Broadcom is now seeing inference demand on the horizon for its accelerator customers, which could provide further upside to the firm’s fiscal 2027 training-centric targets. We also remain impressed with the growth of networking chips into AI alongside custom accelerators.
• VMware remains the firm’s second-largest growth driver, rising more than 60% year over year by our estimates. This impressive growth since the acquisition reflects the successful upselling of customers to the VMware Cloud Foundation full-stack solution, in our view.

The bottom line: We raise our fair value estimate for wide-moat Broadcom to $225 per share from $200, as we raise our medium-term AI chip revenue forecast. Shares dipped 5% in after-hours trading, in our view, reflecting optimism already priced into the stock and only a modest beat to consensus estimates.

• We now model Broadcom to hit the middle of its fiscal 2027 AI revenue target range, and growth has consistently beaten our model this year. There are upside and downside risks to this range, chiefly customer spending patterns and the potential onboarding of new custom accelerator customers.
• We continue to see shares as overvalued and implying Broadcom hitting the upper end of its fiscal 2027 target range. To us, this implies close to 75% AI chip growth in fiscal 2026 and 2027, compared with our own forecast for 60% growth.