Advancing AI Infrastructure And 5G Adoption Will Fuel Chip Demand

Key Takeaways

• Rapid onboarding of major AI customers and expanding multi-year deals are likely to drive outsized, compounding revenue and margin growth well above market expectations.
  
• Dominance in advanced Ethernet networking and a secure, diversified backlog strengthens Broadcom's competitive edge, pricing power, and long-term revenue visibility across multiple high-growth sectors.
  
• Heavy reliance on key AI customers, acquisition risks, cyclical overcapacity, competitive commoditization, and rising regulatory pressures threaten Broadcom's margin stability and growth prospects.

Catalysts

Designs, develops, and supplies various semiconductor devices and infrastructure software solutions worldwide.

• While analyst consensus expects robust AI revenue and margin expansion from Broadcom's investments in next-generation accelerators and XPU custom silicon, recent management commentary signals an even steeper acceleration in AI revenue growth for fiscal 2026, well above prior guidance of 50-60% and underpinned by the immediate ramp of a fourth hyperscale customer with over $10 billion in orders-pointing to the potential for revenue and earnings to materially overshoot current expectations.
  
• Analysts broadly agree Broadcom's expansion beyond its original three hyperscale AI customers could lift the company's SAM; however, the scale and pace of customer onboarding is being underestimated, as management has now established direct, production-level relationships with four (and is engaging three more), signaling possible explosive, compounding growth in new, multi-year AI infrastructure deals well into fiscal 2027 and beyond-positioning both future revenue and margins for further upside.
  
• Broadcom's technological leadership in Ethernet networking-from rack-scale to multi-data center fabric (Jericho4, Tomahawk6)-uniquely positions it to serve as the indispensable backbone for the next generation of global AI and cloud clusters, supporting long-term top-line growth and reinforcing pricing power as data center sizes and bandwidth requirements expand exponentially.
  
• The company's massive, record-setting $110 billion backlog-largely AI-driven-affords exceptional long-term revenue visibility and strengthens Broadcom's ability to invest in disruptive R&D ahead of peers, forming a powerful competitive moat that supports elevated margins and reduces financial volatility.
  
• Leveraging a structurally advantaged North American-centric supply chain alongside anticipated tailwinds from U.S. localization incentives, Broadcom is set to capture market share as semiconductor content expands across automotive, industrial, and broader edge-to-cloud applications, diversifying and multiplying high-margin revenue streams more rapidly than the market currently reflects.

Broadcom Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Broadcom compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Broadcom's revenue will grow by 33.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 31.4% today to 45.0% in 3 years time.
• The bullish analysts expect earnings to reach $64.7 billion (and earnings per share of $13.28) by about September 2028, up from $18.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 41.6x on those 2028 earnings, down from 83.7x today. This future PE is greater than the current PE for the US Semiconductor industry at 32.0x.
• Analysts expect the number of shares outstanding to grow by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.19%, as per the Simply Wall St company report.

Broadcom Future Earnings Per Share Growth

Risks

• Broadcom's sharply increased dependence on a handful of hyperscale AI customers for its XPU and networking chips exposes it to material revenue risk if these customers insource chip design, delay infrastructure buildouts, or shift to other suppliers, threatening both top-line and margin stability.
  
• Aggressive acquisition-led strategy, highlighted by the VMware integration, could generate operational disruptions or costly write-downs if cultural and technical alignment falters, putting future earnings and net margin expansion at risk.
  
• The semiconductor industry's cyclical overcapacity, especially in non-AI segments that Broadcom describes as having only U-shaped recoveries, leaves the company exposed to sharp future downturns in pricing and profits, creating earnings volatility as AI-led growth potentially normalizes.
  
• Broadcom's exposure to commoditization pressures-both in legacy semiconductor segments and as competition in AI accelerators ramps up from Asian rivals and open hardware startups-poses a long-term threat to maintaining high gross margins.
  
• Rising regulatory and geopolitical pressures, including potential antitrust actions and international localization of supply chains, may both limit Broadcom's M&A-driven growth and increase supply chain costs, creating sustained headwinds to margin growth and revenue diversification.

Valuation

• The assumed bullish price target for Broadcom is $416.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Broadcom's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $416.0, and the most bearish reporting a price target of just $218.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $143.8 billion, earnings will come to $64.7 billion, and it would be trading on a PE ratio of 41.6x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $334.89, the bullish analyst price target of $416.0 is 19.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.