We’re Upgrading Our Broadcom Price Target and Rating

Following up on our opening comments, Broadcom (AVGO) shares are indeed down double digits and not too far off their 50-day moving average near $397. In short, this morning’s drop in AVGO more than wiped out their May gain, putting them back to where they were in mid-April.

What was the comment that is hitting AVGO shares? Chief Executive Officer Hock Tan said Broadcom will sell $56 billion in AI chips for the fiscal year 2026 that ends in October. That forecast fell short of the average Wall Street estimate of $57.6 billion.

Were expectations for what Broadcom had to deliver pushed up, given the parabolic rise in the shares the last few weeks? No question.

When we’ve seen this before, be it with Nvidia (NVDA), Marvell (MRVL) or Arista Networks (ANET) earlier this year, the subsequent selloff, for either modestly missing expectations or not delivering on Wall Street whisper numbers, can be quite large. But it can also be an opportunity for those of us who focus on more than just a slight miss between a company’s guidance and Wall Street expectations.

As we indicated earlier today, to us, the larger story is the continued ramp in Broadcom’s AI semiconductor business and the guidance for it to be in excess of $100 billion in fiscal 2027, up from the $56 billion targeted for the current one, which is up 180% compared to 2025. Backing these figures are relationships with Anthropic, Meta (META), Google (GOOGL) and others. There is also the networking aspect, which is also seeing strong demand, and as AI adoption and usage continue to climb, we expect that to continue here just like we do with Marvell.

With Goldman Sachs increasing its combined AI capex forecast for the four largest hyperscalers to $5.3 trillion through 2030, up from a previous estimate of $4.5 trillion, odds are high that Broadcom’s AI chip business will be even higher in fiscal 2028.

Outside of AI chips, Broadcom sees its non-AI semiconductor revenue up 12% to $4.5 billion in the current quarter, with total company chip revenue reaching $20.5 billion, up 124% compared to year-ago levels.

The implied AI chip revenue guidance for the current quarter was ~$16 billion. Add that to the $8.4 billion booked in Q1 2026, and Broadcom’s AI chip revenue for the first half of its fiscal 2026 was $24.4 billion vs. the full-year guidance of $56 billion. That implies the second half of 2026 being up at least 30% compared to the first half of the year.

But as we think about the comment made on last night’s earnings call that management’s 2027 AI chip revenue figure of more than $100 billion “is on the same trajectory as we are seeing in the back half of ’26”, it suggests that H2 2026 guidance skews conservative, and another big step up is coming.

With that in mind, we are hiking our AVGO price target to $525 from $475 and upgrading the name to a One rating from Two. Normally with such a move, we would be inclined to pick up additional shares for the Portfolio, however, this time around, we will wait for the shares to find their footing. We do not expect to be waiting long, given the trading volume we are seeing today.

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At the time of publication, TheStreet Pro Portfolio was long AVGO, ANET, MRVL, and NVDA.