Broadcom Earnings: Raising Fair Value Estimate on Strong 2027 Guidance

Key Morningstar Metrics for Broadcom

• Fair Value Estimate

  : $500

• Morningstar Rating

  : ★★★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : High

What We Thought of Broadcom’s Earnings

Broadcom AVGO‘s January-quarter sales beat guidance, led by artificial intelligence chip sales of $8.4 billion. April-quarter guidance implies near-30% sequential AI chip growth, to $10.7 billion. Management further guided to at least $100 billion in AI chip revenue in fiscal 2027.

Why it matters: Broadcom is a dominant force in AI compute chips, second only to Nvidia. It controls the custom AI chip market with the largest customer (Google) and the most customers overall. Upcoming ramps for Anthropic and OpenAI portend enormous growth in the next two years.

• Broadcom expects to ship AI chips supporting 10 gigawatts of capacity in fiscal 2027, which is massive. We think the $100 billion figure is conservative, with upside coming from Broadcom’s rack shipments to Anthropic. Still, this implies AI sales doubling in 2027 after nearly tripling in 2026.
• We’re skeptical of management’s claim that AI chips won’t dilute gross margin. By our work, these chips dilute gross margin but expand operating margin. If Broadcom raises prices to maintain gross margin, there’s upside to our forecast. Either way, we see AI chips as earnings-accretive.

The bottom line: We raise our fair value estimate for wide-moat Broadcom to $500, from $480, as 2027 guidance exceeded our expectations and implies rapid ramps for Anthropic and OpenAI. Shares remain about 25% below recent highs in December 2025, and we see immense upside for investors.

• Shares have flagged on lower AI sentiment and concerns over AI chip margins. We’re confident in AI spending holding up over the next three years, and believe these chips are earnings-accretive regardless of debates over gross margin. We see Anthropic’s first revenue in late 2026 as a catalyst.
• Shares currently trade closer to our bear case, which would value the stock at $300. To justify our bear-case assumptions, one would have to assume a significant correction in AI spending after 2028, with little AI growth thereafter. To us, this seems overly bearish.