Broadcom: Multisourcing Doesn’t Erode Massive Growth and a Buying Opportunity

Key Morningstar Metrics for Broadcom

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

Marvell Technology and Google announced a commercial agreement for custom chips, including AI inference accelerators. Broadcom AVGO shares fell 5% intraday. This is the latest iteration of reports that Google is qualifying new sources for its TPU chips, including MediaTek and, potentially, AMD.

Why it matters: The market is pessimistic about Broadcom amid Google’s multisourcing, and we disagree. We expected Google to qualify new sources, and Broadcom is diversifying into new customers. Our medium-term growth forecast and buy call are led by ramps for OpenAI and Anthropic.

• Google’s multisourcing (or at least reports thereof) is happening faster than we expected, but we see this evincing a growing pie for TPU sales rather than a direct eating of Broadcom’s position. Still, while we previously expected Broadcom to retain a majority share, it may now be a more even split.
• We still see Broadcom as best-of-breed for custom AI chip design. We like a widening customer base, and we continue to see deep differentiation. We expect multisourcing to continue in this market, indicating accelerating adoption for XPUs broadly, which is good for Broadcom.

The bottom line: We maintain our $650 per share fair value estimate for wide-moat Broadcom. While the market is focused on Google’s multi-sourcing, we see imminent and massive ramps for OpenAI and Anthropic as underappreciated. Broadcom remains a high-quality top pick in semis for us.

• Broadcom’s growth potential over the next two years is being undervalued, with 20 gigawatts of capacity for OpenAI and Anthropic alone creating the potential for $400 billion in cumulative revenue. Google has historically been its anchor customer, but the baton is being passed.
• We believe Broadcom’s medium-term growth, or guidance for it, needs to be the catalyst for the stock. Management has been conservative on guidance, which has soured the market. We expect significant upside to its guidance for “more than $100 billion” in AI chip revenue in 2027.