After Earnings, Is Broadcom Stock a Buy, a Sell, or Fairly Valued?

Broadcom released its fiscal second-quarter earnings report on June 3. Here’s Morningstar’s take on Broadcom’s earnings and stock.

Key Morningstar Metrics for Broadcom

• Fair Value Estimate
  : $650.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Broadcom’s Fiscal Q2 Earnings

Broadcom reported in-line April-quarter results and good July-quarter guidance. Management maintained its outlook for “more than $100 billion” in artificial intelligence revenue in fiscal 2027. Shares fell 14% after hours, as investors hoped for higher guidance in 2027 and beyond.

Why it matters: We believe Broadcom is guiding conservatively and see the $100 billion fiscal 2027 target as a sandbag. Management expects to ship capacity for 10 gigawatts of compute in 2027, and we believe it will earn well above $10 billion per gigawatt.

• Anthropic and OpenAI’s XPU ramps look to be focused in 2027 and 2028, making for a relatively softer 2026 (still nearly 200% growth). Apollo and Blackstone are helping to finance purchases of chips from Broadcom, which could amount to 20 gigawatts of capacity alone in the next two years.
• We model close to $200 billion in AI chip revenue in fiscal 2028. Every sign points to high visibility and to massive demand over the next two years. Management isn’t following peer Marvell’s long-term bullish guidance, but we believe a real, immense opportunity exists nonetheless.

The bottom line: We raise our fair value estimate for wide-moat Broadcom to $650 per share from $550. We’re confident in rapid long-term XPU growth and have become more constructive on incremental margins from these custom chips. With the selloff reaction, Broadcom remains one of our top picks in semis.

• We view XPUs as gross-margin-dilutive but operating-margin-accretive, via co-investment from customers. We expect Broadcom to maintain strong operating margins as these chips take up a higher mix. If these chips are actually accretive to existing margins, we see upside to our forecast.
• Shares trade at 18 times consensus fiscal 2028 earnings after the selloff. We value Broadcom at 25 times our 2028 earnings estimate, which we see as a fair price for an extremely high-quality company we expect to continue growing in the high teens through the end of the decade.

Fair Value Estimate for Broadcom

With its 4-star rating, we believe Broadcom’s stock is moderately undervalued compared with our long-term fair value estimate of $650 per share. Our valuation implies fiscal 2026 (ending October 2026) and fiscal 2027 adjusted price/earnings multiples of 56 times and 34 times, respectively, and a fiscal 2026 enterprise value/sales multiple of 29 times. Our valuation implies a 26 times multiple against our 2028 earnings estimate. This fits a more normal multiple after a superb period of growth for a high-quality business that we expect to continue growing in the mid-to-high teens.

We model 40% revenue growth for Broadcom through fiscal 2030, driven predominantly by the growth of its semiconductor revenue, primarily its AI chip business. In our view, Broadcom’s primary valuation driver going forward is the rapid growth of its AI chip business, which supports such high multiples.

Read more about Broadcom’s fair value estimate.

Economic Moat Rating

We believe Broadcom holds a wide economic moat stemming from intangible assets in chip design and switching costs for its software products. Strength in both chips and software allows the company to earn terrific accounting and economic profits, and we believe its competitive positioning will allow it to do so for the next 20 years. While we see most of Broadcom’s businesses as “moaty” in isolation, we believe its ability to aggregate disparate businesses via acquisitions and run them with terrific efficiency reinforces its wide moat. We see this moat evidenced in impressive operating and economic profit margins.

Read more about Broadcom’s economic moat.

Financial Strength

We anticipate that Broadcom will focus on strong cash generation. Over the short term, we expect the firm to focus on paying down debt taken out to acquire VMware. Over the long term, we expect the focus to be on increasing the dividend and bolting on more acquisitions by which to add to cash flow. We don’t worry about its debt load, given the long-dated nature of its outstanding notes and its robust cash generation. We see it as appropriately deleveraged exiting fiscal 2025 to begin considering further acquisitions, but anticipate a focus on debt reduction and share buybacks in fiscal 2026. Broadcom consistently generates free cash flow margins above 40%, which we expect to continue. Over the last five years, it’s averaged nearly $20 billion in cash flow annually. We project free cash flow rising past $50 billion annually by fiscal 2027.

Read more about Broadcom’s financial strength.

Risk and Uncertainty

We assign a High Uncertainty Rating to Broadcom. We see its primary risk arising from customer concentration and AI. Broadcom is increasingly concentrated in its AI accelerator business, which is made up of a handful of high-spending customers like Google and Anthropic. Broadcom’s results and valuation are highly sensitive to the rate of AI investment over the next five years, and within that spending, the secular trend toward custom silicon. Slowdowns in spending, or higher competition from Nvidia and others, are the primary downside risks to results and our valuation.

Additionally, Broadcom also operates with a high reliance on TSMC for its chip supply, and supply constraints could hamper its ability to ship to customers. Nonetheless, we believe Broadcom is a preferred customer of TSMC and would earn high priority in such a scenario, both for its scale and lengthy relationship. We also believe there is a key risk with new management, since 70-year-old CEO Hock Tan has been integral to Broadcom’s successful acquisition and operating strategy so far.

On the environmental, social, and governance front, we see little risk for Broadcom, primarily resulting from hard-to-find engineering talent for wireless and networking chips.

Read more about Broadcom’s risk and uncertainty.

AVGO Bulls Say

• Broadcom is best-of-breed in custom AI accelerators, boasting the largest customer in Google and layering new customers in like Anthropic and OpenAI. Rising AI spending portends immense growth.
• Broadcom is an exemplar of operating efficiency. It earns excellent operating margins and generates enormous cash flow. It is particularly strong at acquiring companies and trimming excess expenses.
• While smaller relative to the size of its rising AI chip business, Broadcom’s traditional networking chips and VMware software are moaty businesses in their own right that generate good cash flow.

AVGO Bears Say

• Broadcom’s chip business bears significant customer concentration, with a small handful of large AI customers driving the bulk of revenue and future growth.
• Broadcom’s software portfolio holds legacy and mature businesses, like virtualization and mainframes, which we think will exhibit moderating growth.
• Broadcom relies heavily on acquisitions to expand its portfolio and may struggle to find deals large enough to move the needle that can pass antitrust scrutiny.

This article was compiled by Jillian Moore.