Broadcom guides to big numbers but investors wanted more. Why we're OK to hold for now
We recently reduced our position size, which allows us to be more patient with this one.
TL;DR
- Broadcom reported strong fiscal third-quarter earnings and provided optimistic multiyear revenue forecasts for its AI custom chip business.
- AI revenue is projected to reach $58 billion in fiscal year 2026, increasing to $115 billion in fiscal year 2027 and $230 billion in fiscal year 2028.
- The company's long-term outlook is supported by partnerships with Alphabet, Anthropic, OpenAI, and Meta Platforms.
- Broadcom established a special purpose vehicle (SPV) with Apollo and Blackstone to facilitate compute infrastructure for AI labs.
- AI semiconductor revenue surged 221% year-over-year to $16.7 billion in the fiscal third quarter.
- Despite strong growth, the stock saw a mixed reaction due to concerns about circular financing, customer concentration, and potential political pushback against data centers.
- The company's price target was lowered from $480 to $430 due to lower P/E multiples for the semiconductor group.