Bernstein raises Broadcom’s target to $575 as AI revenue is projected to reach about $230B in FY2028.

Overview

This earnings review assesses Broadcom’s FQ326 results, near-term guidance and the longer-term AI semiconductor trajectory. Bernstein views the quarterly beat as positive, but considers the FY2027–28 AI revenue outlook the central investment issue; it raises estimates and the target price while retaining Outperform.

Core views

Broadcom’s FQ326 results modestly exceeded expectations. Revenue was $29.6B and EPS was $3.32, compared with Street expectations of $29.4B and $3.23. Semiconductor revenue of $20.8B exceeded the Street’s $20.5B, while infrastructure software revenue of $8.75B was slightly below the $8.9B expectation. The result was led by AI semiconductors: quarterly AI revenue was about $16.7B, up 221% year on year and above sell-side expectations of about $15.9B. In contrast, implied non-AI semiconductor revenue was about $4.1B, down slightly sequentially and below consensus. Pro-forma gross margin of 75.0% exceeded the 74.1% consensus expectation, while pro-forma EBIT margin reached 67.9%, above both the prior quarter’s 67.3% and the Street’s 66.9%. Free cash flow was $13.665B, or a 46.2% margin. The FQ426 outlook is broadly in line at the total-company level but retains the same mix pattern: management guided revenue to about $34.8B, essentially matching the Street, and operating margin to about 66%, slightly below the 66.5% consensus. Semiconductor revenue guidance of about $26.1B is above the Street’s $25.9B, underpinned by $21.7B of AI revenue, up roughly $5B quarter on quarter and more than 200% year on year. However, non-AI semiconductor revenue of about $4.3B and software revenue of about $8.7B are below Street expectations. Gross margin is expected to decline to about 73%, roughly 200 basis points sequentially and below the 73.6% consensus, reflecting a greater contribution from lower-margin AI semiconductor revenue. Implied EPS guidance of about $3.82 is also slightly below the Street’s $3.85. Bernstein argues that investors are primarily focused on the trajectory into FY2027 and FY2028 rather than the modest near-term beat. Broadcom raised its FY2027 AI revenue outlook to roughly $115B from $100B previously, still implying a doubling year on year, and outlined a potential FY2028 AI revenue level of $230B, another doubling and, in Bernstein’s view, well above expectations. The firm notes that the associated demand outlook is larger still—about 10 GW in 2027 and 20 GW in 2028—creating further upside if Broadcom can secure sufficient supply and the required land, power and shell capacity. The stated revenue targets imply roughly $11.5B per GW in both years; Bernstein highlights management’s clarification that a previously cited $20B–$30B per GW figure was a generic observation rather than Broadcom’s content estimate. The long-term debate centers on customer concentration. Bernstein notes the bearish case that Google diversification is occurring while the forward outlook becomes more dependent on Anthropic and OpenAI, with FY2028 demand of 10 GW and 5 GW, respectively. The bullish counterargument is that Google could remain a large, stable customer generating tens of billions of dollars annually through the decade even if it falls to Broadcom’s third-largest customer, while frontier-lab spending plans support the demand outlook. Bernstein sides with the bullish view, while acknowledging that concentration among currently cash-constrained frontier labs warrants a lower valuation multiple. Bernstein raises FY2026/FY2027/FY2028 revenue estimates to $105.9B/$167.2B/$284.0B from $105.5B/$164.0B/$225.6B. Its AI revenue estimates rise to $57.6B/$115.3B/$230.0B from $56.0B/$108.7B/$168.5B. Pro-forma EPS estimates change from $11.60/$18.69/$25.65 to $11.64/$18.63/$31.54: FY2027 is slightly lower because of reduced VMware and non-AI semiconductor expectations and a larger AI mix, while FY2028 rises materially. The firm cuts its valuation multiple to 23x from 25x because of increased revenue concentration, but raises the target price to $575 from $550 by applying about 23x to average FY2027–28 EPS of $25.09, and maintains Outperform.

Analysis framework

Bernstein first compares reported revenue, EPS, segment performance and margins with Street expectations. It then evaluates FQ426 guidance by segment and product mix, before focusing on management’s FY2027–28 AI revenue and demand framework, customer-demand mix and potential capacity constraints. Finally, it revises revenue and EPS estimates and applies a lower price-to-earnings multiple to average FY2027–28 pro-forma EPS to derive the price target.

Methodology notes

• Industry AnalysisSupply-demand framework

  AI infrastructure demand and supply-capacity assessment

  The report links Broadcom’s AI revenue targets to projected demand of 10 GW in 2027 and 20 GW in 2028, while identifying supply and land, power and shell availability as possible constraints and sources of upside.

• Valuation methodsP/E and PEG Valuation

  Price-to-earnings multiple valuation

  Bernstein derives its $575 target by applying an approximately 23x multiple to average FY2027–28 pro-forma EPS of $25.09, after reducing the multiple from 25x for customer-concentration risk.

• Corporate Fundamentals and FinanceFree cash flow analysis

  Free cash flow and margin analysis

  The report uses quarterly free cash flow of $13.665B and a 46.2% margin, alongside margin trends, to support its discussion of Broadcom’s financial profile.

Asset mapping & comparison

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

• Broadcom Inc (AVGO)

  Primary covered company; Bernstein expects accelerating AI semiconductor revenue to drive higher FY2027–28 estimates.

  Strengths

  AI semiconductor revenue exceeded expectations, management outlined a sharply higher FY2027–28 AI trajectory, and the report highlights strong margins and free-cash-flow generation.

  Weaknesses

  Non-AI semiconductor and software outlooks are below Street expectations, while higher AI mix is expected to reduce gross margins.

  Comparison

  FQ326 semiconductor revenue exceeded expectations while infrastructure software was below expectations; Bernstein describes the stock as trading at about 12x more than $30 FY2028E EPS before its target-price valuation framework.

  Risks

  Unexpected AI weakness, customer share or socket losses, merger-synergy execution failure, lack of cash return, or unexpected top-management changes.

Key data

• FQ326 revenue$29.6BVersus Street expectation of $29.4B.
• FQ326 EPS$3.32Versus Street expectation of $3.23.
• FQ326 AI semiconductor revenue~$16.7BUp 221% year on year; versus sell-side expectation of about $15.9B.
• FQ326 pro-forma gross margin75.0%Above Street expectation of 74.1%; down about 210 bps sequentially.
• FQ426 revenue guidance~$34.8BEssentially in line with Street expectation of about $34.79B.
• FQ426 AI revenue guidance$21.7BUp about $5B quarter on quarter and more than 200% year on year; above Street expectation of $21.3B.
• FY2028 AI revenue estimate$230.0BBernstein estimate, raised from $168.5B previously.
• FY2028 pro-forma EPS estimate$31.54Raised from $25.65 previously.

Impact & implications

Bernstein sees the AI semiconductor trajectory into FY2027–28 as the principal driver of its higher estimates and target price. Near-term mix is expected to pressure gross margin and concentration in frontier-lab customers leads the firm to reduce its valuation multiple, but it believes the scale of the AI revenue outlook more than offsets those factors.

Risks

• Unexpected AI weakness or an AI demand air pocket could pressure Broadcom’s outlook and price target.
• Share and/or socket losses at key customers could reduce expected AI semiconductor revenue.
• Failure to execute on targeted merger synergies is a stated downside risk.
• Lack of cash return and unexpected changes to top management are stated risks.
• Growing dependence on cash-constrained frontier labs increases FY2027–28 revenue concentration risk.

What to watch

• Progress toward Broadcom’s FY2027 and FY2028 AI revenue targets of roughly $115B and $230B.
• Whether Broadcom can secure additional supply and sufficient land, power and shell capacity to serve projected 10 GW demand in 2027 and 20 GW in 2028.
• Demand contributions from Anthropic, OpenAI, Google and Meta, particularly the increasing concentration in Anthropic and OpenAI.
• The effect of an expanding AI revenue mix on gross margin and operating margin.
• Execution against VMware and non-AI semiconductor expectations.