Broadcom 1Q preview: AI and XPU remain the core upside drivers

Overview

This report is Goldman Sachs' pre-earnings company research preview on Broadcom Inc. The report argues that, heading into earnings, market expectations have ticked up modestly, but key customer AI capital spending remains strong, and Broadcom may still deliver upside surprises in custom XPUs, AI networking, and FY26/FY27 AI revenue.

Core views

Goldman's core view is that Broadcom has upside to both 1Q results and subsequent guidance, and that market expectations for FY26/FY27 AI revenue may be revised higher after earnings. The report highlights that investors are most focused on FY26/FY27 AI revenue updates, engagement with existing and new XPU customers, the XPU ramp path, potential competition at key customers, and margin trends amid rapid scaling of custom XPU revenue.

Analysis framework

Report adopts a pre-earnings framework centered on guidance, AI revenue forecasts, customer demand strength, product ramp, margins, and target-price assumptions. The analysis also incorporates Goldman coverage framework elements such as rating history, target price history, GS Factor Profile, M&A Rank, and Quantum database disclosure framework.

Methodology notes

• Valuation methodsTarget Price Method

  12-month target price based on normalized EPS multiple

  Goldman raises the 12-month target price to $500, based on 30x normalized EPS of $17; the prior target price was $480, based on normalized EPS of $16.

• Factor FrameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile comparison

  GS Factor Profile compares individual stocks with the market and sector peers across growth, financial returns, valuation multiples, and composite metrics to provide investment context.

• M&A FrameworkM&A Rank

  Probability tiering for becoming a takeover target

  Goldman's M&A Rank rates covered companies on a scale of 1 to 3 for the probability of becoming an acquisition target, where 1 is high, 2 is medium, and 3 is low.

• Data ToolQuantum

  Goldman's proprietary financial database

  Quantum provides a company's historical financials, forecasts, and financial ratios, and can be used for deep single-name analysis or cross-industry, cross-market comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Broadcom Inc. (AVGO.US)

  Research subject and directly benefiting asset

  Strengths

  Strong AI infrastructure demand, steady spending from custom XPU customers, Tomahawk 6 driving scale-up in AI networking, and Goldman raising FY26/FY27 EPS forecasts.

  Weaknesses

  Market expectations have already ticked up modestly, the rapid ramp of custom XPUs may raise margin concerns, and the non-AI business still faces inventory digestion pressure.

  Comparison

  Goldman believes its FY26/FY27 AI revenue forecasts are 6%/16% above consensus, implying a still-bullish stance relative to market expectations.

  Risks

  A slowdown in AI infrastructure spending, loss of custom compute share, continued non-AI inventory digestion, and intensifying VMware competition.

• AI semiconductor supply chain

  Theme-related asset

  Strengths

  Strong customer capital spending, with AI infrastructure buildout driving demand for custom compute and networking chips.

  Weaknesses

  Demand is concentrated among a few large customers, so order elasticity could be significant if customer budgets or product roadmaps change.

  Comparison

  The report does not provide a specific quantified peer comparison, but emphasizes that customer engagement in XPU and AI networking is the key variable.

  Risks

  A slowdown in the AI capex cycle, competitors entering key customers, or network/XPU ramp falling short of expectations.

Key data

• Report date2026-05-19The report cover page is time-stamped 19May2026 5:08PM EDT.
• Target price$500The 12-month target price is raised from $480 to $500.
• Disclosed price$420.71Broadcom Inc.'s price is listed as $420.71 in the company-specific disclosure.
• Implied upside约18.8%Estimated based on a $500 target price and a $420.71 disclosed price.
• FY26 AI revenue forecast vs. market+6%Goldman's FY26 AI revenue forecast is 6% above consensus.
• FY27 AI revenue forecast vs. market+16%Goldman's FY27 AI revenue forecast is 16% above consensus.
• Normalized EPS assumption$17The target price is based on 30x normalized EPS of $17.
• Target price multiple30xUsed for the 12-month target price valuation.

Impact & implications

If Broadcom provides a stronger FY26/FY27 AI revenue trajectory, XPU customer ramp, and AI networking demand signals in the earnings release, the market may raise AI revenue and EPS expectations, improving share-price sentiment. Conversely, if AI infrastructure spending cools, XPU competition intensifies, or margins come under pressure, the current elevated expectations could create downside risk.

Risks

• A slowdown in AI infrastructure spending.
• Loss of share in custom compute.
• Ongoing non-AI inventory digestion.
• Intensifying VMware competition.
• XPU customer ramp or new customer onboarding below expectations.
• Margins under pressure during the rapid ramp of custom XPU revenue.

What to watch

• Incremental commentary on the FY26/FY27 AI revenue path during the earnings call.
• Upside in shipment volumes from existing XPU customers.
• Revenue visibility from newly onboarded XPU customers.
• Whether potential competition emerges at key XPU customers.
• FY26/FY27 margin trajectory.
• The ramp pace of AI networking business and Tomahawk 6 in scale-up and scale-out networks.