Following the Broadcom-OpenAI Deal, Wall Street Says AVGO Stock Still Could Gain 40% From Here

Co-developed with Broadcom (AVGO), ChatGPT-maker OpenAI recently announced its first-ever custom AI chip, Jalapeño. Built for large language model (LLM) inference rather than training, the chip comes amid the company's broader ambitions of reducing dependence on GPUs.

Analysts at Wedbush believe this is a win for Broadcom, although they were mindful of curbing expectations for the near term. “Net, we see this development as a probable positive for AVGO (and OpenAI assuming the silicon eventually works as presented), but also wouldn't be surprised if initial shipments are more modest in scale and broader adoption requires a 2nd or 3rd (or 4th) iteration of the design," said analyst Matt Bryson in a note to clients.

This is what Broadcom does. It is a clear leader in the custom application-specific integrated circuit (ASIC) market, with a market share exceeding 60% as well as enviable clientele like OpenAI, Alphabet (GOOGL), and Meta Platforms (META), among others.

Accordingly, Broadcom's gain of just 9% so far this year should not be a concern for investors. Plus, with a dividend yield of 0.71%, the flows will continue to shareholders. How should you look at AVGO stock now? Let's dive in.

Why Broadcom?

What has led to Broadcom commanding such a dominant market share in the world of ASICs? The answer lies in what it offers. It is beyond mere chip designs, with reliable capabilities in advanced ASIC engineering, high-speed SerDes IP, high-bandwidth memory (HBM) integration, chip packaging, manufacturing coordination with Taiwan Semiconductor (TSM), and finally Ethernet networking headlined by its proprietary Tomahawk switches.

The product cadence backs up this dominance, with networking prowess being the company's secret sauce. Broadcom's Tomahawk 6 switch chip entered volume production in March 2026 as the industry's first 102.4 terabit per second Ethernet part, with the companion Jericho 4 fabric chip — running at 51.2 terabits per second — having begun shipping in August 2025 and designed to interconnect XPUs across data centers.

Conversely, GPU market leader Nvidia's (NVDA) competing Spectrum-X1600 switch is not expected in volume until the second half of 2026, meaning Broadcom is shipping its next-generation switching silicon roughly two quarters ahead of its most credible rival. Meanwhile, Cisco Systems' (CSCO) Silicon One G300 matches Tomahawk 6 on raw 102.4 terabit per second switching capacity, though Cisco still faces a steep climb to regain market share lost to Broadcom and Nvidia in recent years.

Generally, for every dollar that hyperscalers spend on custom AI accelerators, they “spend an additional $0.40-$0.60 on networking infrastructure,” according to Tech Insider, which Broadcom also supplies. That attachment dynamic means networking revenue scales almost automatically alongside custom silicon wins, without Broadcom needing to win any incremental competitive bid, thus making the company less vulnerable to lumpier custom AI chips demand.

Finally, a recent partnership also addressed customer concentration risks, and indicated further revenue growth for Broadcom in the coming years. On June 9, Broadcom announced the establishment of the AI XPV Platform alongside Apollo (APO) and Blackstone (BX) as “initial anchor investors.” The AI XPV Platform is “designed to enable more than 20 gigawatts in compute capacity […] and networking solutions customized for leading frontier AI labs, including Anthropic and OpenAI, through 2028.”

Financially, the platform is designed in such a manner that funding risks will be less, both for Broadcom and its customers. Building gigawatt-scale AI data centers requires enormous upfront capital that even cash-rich labs like Anthropic and OpenAI would rather not fully carry on their own balance sheets. By bringing in Apollo and Blackstone, Broadcom has effectively created a financing vehicle that lets frontier AI labs access massive compute capacity without each lab needing to independently raise tens of billions in infrastructure debt or equity. 

For Broadcom, this is a demand-creation mechanism dressed up as a financing partnership. Every gigawatt that Apollo and Blackstone help fund becomes a gigawatt of essentially guaranteed, multi-year demand for Broadcom's XPU and networking silicon, locked in well ahead of when that capacity actually gets built.

Operating From a Position of Financial Strength (For Which You Pay a Premium)

Broadcom posted net revenue of $22.2 billion in the second quarter, reflecting a 48% year-over-year (YOY) rise. The semiconductor solutions segment, which serves as the primary chip business, showed exceptional strength with revenue climbing 79% YOY to $15 billion. Leadership anticipates this segment will reach $16 billion in Q3, signaling an even stronger pace of expansion. On the other hand, the infrastructure software segment recorded a more tempered 9% YOY increase to $7.2 billion, coming in just below analyst projections of $7.3 billion.

Non-GAAP EPS advanced 54% to $2.44, comfortably surpassing the consensus forecast of $2.40. This achievement represented the ninth-straight quarter of outperforming profit expectations.

Operating cash flow continued to demonstrate strength, growing 60% YOY to $10.5 billion. The company finished the period with a robust cash balance of $19.6 billion, far outpacing its short-term debt position of $2.3 billion.

Nevertheless, AVGO stock still commands premium valuations compared with the overall sector. The forward price-to-earnings (P/E) ratio of 35.6 times, price-to-sales (P/S) multiple of 27.1 times, and price-to-cash flow (P/CF) multiple of 47.3 times all remain well above their respective sector averages.

What Do Analysts Think of AVGO Stock?

Analysts have an overall “Strong Buy” rating for AVGO stock with an average target price of $516.59. This indicates potential upside of about 37% from current levels. Out of 42 analysts covering the stock, 34 have a “Strong Buy” rating, three have a “Moderate Buy” rating, and five analysts have a “Hold” rating.