Broadcom Will Survive the AI Bubble, But Everyone Else Won't. Here's Why.

Broadcom (AVGO) has spent the year as one of the market’s favorite AI plays, with the stock price reaching its all-time high in early June. During the last couple of months, though, that started to change. The stock slid sharply after its June earnings release, when strong results still weren’t enough for a market expecting perfection. The decline continued as worries grew that AI spending had run too hot. In its August update, Goldman Sachs added to that concern, dropping Broadcom from its US Conviction List. While the firm kept its “Buy” rating, it argued that investors were starting to move into other parts of the market, not just AI. Underneath it all still sits the same fear that the AI trade is due for a fall. The problem with that fear is it treats Broadcom like every other AI chip stock, which, in my opinion, is not the case.

Why Broadcom Isn’t the Usual AI Bet

Most AI chip stocks rely on selling GPUs into demand that can drop off quickly. Broadcom works differently. It designs custom AI accelerators, called XPUs, alongside a small group of the biggest tech firms. These chips are tied to deals that run for years rather than one-off orders. Broadcom has a custom chip work deal with Google (GOOG) (GOOGL) that will run through 2031. Anthropic is scaling from around 1 gigawatt of compute in 2026 to about 3 gigawatts in 2027. OpenAI, Meta (META), and Apple (AAPL) are on the customer list too. Last quarter, Broadcom booked over $30 billion in AI orders against just $10.8 billion it actually shipped. 

Customers are placing orders years in advance because compute takes time to secure. During the last earnings call, CEO Hock Tan said the company’s visibility now “runs all the way to 2028.” In June, Broadcom teamed up with Apollo and Blackstone to build a 20-gigawatt compute platform, starting with a $35 billion round to fund Anthropic’s buildout. Investors don’t commit money on that scale for demand they expect to fade. Broadcom still expects over $100 billion in AI chip revenue in fiscal 2027.

There’s more to Broadcom than the chips, too. It also makes the networking switches that tie those chips together, so it earns on two parts of every AI build-out instead of one. And a large chunk of its revenue comes from infrastructure software, mostly VMware. This brings in steady cash whether the AI cycle runs hot or cools off. 

That mix is precisely what a pure AI stock doesn’t have. So dropping Broadcom in with the rest of the AI names ignores what makes it different.

About Broadcom Stock 

Broadcom is a global technology company that develops and supplies semiconductor chips and infrastructure software. The company operates through the Semiconductor Solutions and Infrastructure Software segments. Its products are used across a wide range of industries, including telecommunications, data centers, cloud computing, AI, industrial automation, and enterprise networking. 

Broadcom significantly underperformed the broader semiconductor sector over the past year. The stock delivered returns of around 39% while the iShares Semiconductor ETF (SOXX) more than doubled during the same time period, generating gains of about 121%. The performance gap suggests investors became more cautious about the company’s expensive valuation compared with its peers, despite its strong revenue growth.

Broadcom’s valuation sends mixed signals. The forward GAAP price-to-earnings (P/E) of 46.45x sits marginally below the company’s 5-year average of 48.23x. The forward price-to-sales (P/S) ratio of 18.77x tells a different story, sitting roughly 47% above the 5-year average of 12.73x. The EPS outlook helps justify the premium. Analysts expect growth of 70% in 2026, followed by a further 68% in 2027. The growth is then expected to slow down but remain at a healthy 34% in 2028 and 23% in 2029. The strong EPS trajectory and the contracted AI orders are what the market is paying up for. The company carries more debt than usual, mostly due to the VMware acquisition. Broadcom holds $64.91 billion in debt against $19.63 billion in cash. The net debt figure is small next to the company’s market cap, touching $2 trillion. 

Taken together, AVGO's premium isn’t cheap. But with years of demand already booked and steady software cash underneath it, Broadcom is in a far stronger position than the AI names it keeps getting sold alongside. 

Broadcom Delivers Record Quarter

Broadcom reported its second-quarter fiscal 2026 earnings on June 3. The company generated a record $22.2 billion in revenue, surpassing the consensus forecast of $22.1 billion. It also delivered record operating income of $14.9 billion, while its operating margin improved to 67.3% as operating expenses remained stable. The Semiconductor Solutions segment posted a record $15 billion in revenue, with AI semiconductor products making up 49% of total revenue. At the end of the quarter, the company had $19.6 billion in cash and $4.3 billion in inventory. 

Going forward, management projects third-quarter revenue of approximately $29.4 billion, well above the consensus estimate of $28.5 billion. It expects semiconductor revenue to reach $20.5 billion, including $16 billion from AI semiconductor products. This reflects more than 200% year-over-year (YoY) growth. Software revenue is estimated to grow 31% YoY to $8.9 billion. However, the company expects its consolidated gross margin to decline to about 74%, mainly because AI semiconductor sales will make up a larger share of revenue. 

What Do Analysts Expect for AVGO Stock? 

On July 27, two financial services firms, including Bernstein and J.P. Morgan, reaffirmed their “Buy” ratings on AVGO stock. Bernstein and J.P. Morgan also maintained their price targets of $550 and $580, respectively. In addition, Barclays reiterated its “Buy” rating and maintained a $500 price target on July 24. 

Broadcom currently enjoys a consensus “Strong Buy” rating from 41 Wall Street analysts covering the stock. According to their estimates, AVGO has an average price target of $519.35, offering a further 22% upside from the current share price. The highest price target of $675 implies an additional 59% upside from here.