AVGO: The $4 Trillion AI Chip Play That's Just Getting Started

Quick Take

Broadcom (AVGO) is riding the AI wave like few others. NVIDIA's blockbuster earnings and TSMC's aggressive expansion signal a supercycle in AI infrastructure, and AVGO is a critical supplier of custom AI chips and networking silicon for the hyperscalers building these AI factories. We see AVGO as a prime beneficiary, with a clear path to $4 trillion market cap alongside TSMC.

The Catalyst: AI Factory Buildout Accelerates

NVIDIA's Q1 FY2027 results were a wake-up call for anyone doubting the AI capex supercycle. Revenue hit $81.6 billion, up 85% YoY, with data center revenue surging 92% to $75.2 billion. Networking — a key area where Broadcom competes — grew a stunning 199% to $14.8 billion. Jensen Huang called it "the largest infrastructure expansion in human history."

But it's not just NVIDIA. TSMC just announced another $100 billion investment in its Arizona fabs, and its CEO sees chip demand strong through 2029-2030. This is a clear signal that the AI buildout is multi-year, and Broadcom is positioned right in the middle of it.

What This Means for Broadcom

Broadcom's custom AI chip (ASIC) business is a direct beneficiary. Hyperscalers like Alphabet, Meta, and Microsoft are designing their own AI chips to reduce dependence on NVIDIA and cut costs. Broadcom is the go-to partner for these custom designs, and the demand is only accelerating.

Our proprietary estimates model shows AVGO's AI revenue growing at a CAGR of 40%+ over the next three years, driven by custom ASICs and networking. We're modeling AI-related revenue to reach $30 billion by 2027, up from roughly $12 billion in 2024.

Our Data: Estimates vs. Consensus

Our estimates are 10-15% above consensus for FY2026 and FY2027. The Street is still undervaluing the custom ASIC opportunity, especially as NVIDIA's supply constraints push more workloads to custom silicon. We see a clear path to $80+ EPS by 2027.

• FY2026 Revenue Estimate: $72.5B (consensus: $68.9B)
• FY2026 EPS Estimate: $7.85 (consensus: $7.20)
• FY2027 Revenue Estimate: $89.0B (consensus: $81.2B)
• FY2027 EPS Estimate: $9.60 (consensus: $8.75)

Valuation: Room to Run

AVGO trades at 28x forward earnings, a discount to NVIDIA's 45x and even TSMC's 30x. Given its growth rate and strategic position, we think a 35x multiple is justified, implying a fair value of $340 per share — 25% upside from current levels.

Technicals: Strong Momentum

AVGO's technical score is 82/100 (Bullish). The stock is trading above its 50-day and 200-day moving averages, and the RSI is at 62 — not overbought, but showing strong momentum. Recent volume spikes on up days confirm institutional accumulation.

Risks to Watch

• Concentration risk: A slowdown in hyperscaler capex would hit AVGO hard.
• Valuation risk: At 28x, AVGO is not cheap, and any miss could trigger a selloff.
• Competition: NVIDIA's networking push (199% growth) could encroach on AVGO's territory.

Bottom Line

Broadcom is a core holding for any AI-focused portfolio. The AI factory buildout is accelerating, and AVGO is a key supplier of the custom chips and networking that make these factories run. With our estimates well above consensus and a clear catalyst path, we see 25% upside over the next 12 months. Buy on any weakness.