Broadcom Inc. (AVGO) Report Interpretation

Overview

This earnings review assesses Broadcom's FY3Q26 results and FY4Q26 outlook. Goldman Sachs views the quarter as solid, particularly in AI semiconductors and profitability, but expects a modest initial share-price decline because overall guidance and margin expectations were subdued; the firm remains Buy rated.

Core views

Goldman Sachs characterizes Broadcom's FY3Q26 results as broadly in line, with better profitability and stronger-than-expected AI semiconductor revenue. Total revenue was $29.6bn, matching Goldman Sachs' $29.6bn forecast and slightly above the Street's $29.5bn. Gross margin excluding stock-based compensation was 75.0%, 85 basis points above Goldman Sachs and 87 basis points above the Street. Operating margin was 67.9%, versus 67.0% and 66.9%, respectively, while operating EPS of $3.32 was essentially in line with Goldman Sachs' $3.33 forecast and above the Street's $3.24. AI semiconductor revenue grew 221% year on year to $16.7bn, exceeding both Goldman Sachs' $16.1bn estimate and the Street's $16.1bn expectation. Semiconductor Solutions revenue was $20.8bn, broadly in line with expectations, while Infrastructure Software revenue of $8.8bn was modestly below Goldman Sachs' $8.9bn and the Street's $8.9bn forecasts. The key issue is the FY4Q26 outlook. Broadcom guided total revenue to $34.8bn, below Goldman Sachs' $36.2bn estimate and the Street's $35.2bn expectation. The guidance implies 17.6% quarter-on-quarter and 93.2% year-on-year growth, versus Goldman Sachs forecasts of 22.3% and 100.7% and Street forecasts of 19.3% and 95.3%. Adjusted operating-margin guidance of 66.0% was also below Goldman Sachs' 67.5% expectation and the Street's 66.8%. In contrast, AI semiconductor revenue guidance of $21.7bn was effectively in line with Goldman Sachs' $21.7bn forecast and 1.7% above the Street's $21.3bn expectation. Goldman Sachs therefore expects the stock to trade down modestly following the release, as the overall outlook is just below expectations despite the AI strength. The report attributes muted pre-results expectations to investor concern over competitive trends at leading customers, including Google, even as custom-silicon programs are expected to ramp across several customers in 2027. Goldman Sachs identifies three central conference-call questions: whether management updates its FY27 AI-revenue growth targets, market-share trends at key XPU customers, and the expected gross-margin trajectory through FY27. These items matter because they would clarify whether the current AI semiconductor growth can extend into the planned custom-silicon ramps and how much profitability may be affected. Goldman Sachs remains Buy rated on AVGO and sets a 12-month price target of $525, based on a 30x multiple of its normalized EPS estimate of $17.50. The report lists three downside risks: a slowdown in AI infrastructure spending, share loss in Broadcom's custom-compute franchise, and increased competition in VMware.

Analysis framework

The report compares reported revenue, segment revenue, margins and EPS with Goldman Sachs and Street expectations, then contrasts FY4Q26 guidance with those benchmarks. It focuses on AI semiconductor growth, customer competitive dynamics, custom-silicon ramps, and gross-margin direction to assess the earnings implications, while valuing the stock using a normalized EPS multiple.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Price target based on a 30x multiple of normalized EPS.

  Goldman Sachs applies a price-to-earnings multiple to its normalized EPS estimate of $17.50 to derive the $525 12-month target price.

• Industry AnalysisVolume-price decomposition

  Segment-level revenue and margin variance analysis against forecasts.

  The report separates AI semiconductor, non-AI semiconductor, Semiconductor Solutions and Infrastructure Software revenue, then compares their results and guidance with Goldman Sachs and Street expectations alongside margin outcomes.

Asset mapping & comparison

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

• Broadcom Inc. (AVGO)

  Primary covered company; AI semiconductor growth and custom-compute execution underpin the report's thesis.

  Strengths

  AI semiconductor revenue grew 221% year on year to $16.7bn and FY4Q26 AI semiconductor revenue guidance of $21.7bn exceeded the Street expectation.

  Weaknesses

  FY4Q26 total-revenue guidance of $34.8bn and 66.0% operating-margin guidance were below Goldman Sachs expectations.

  Comparison

  FY3Q26 total revenue was in line with forecasts, while AI semiconductor revenue and margins exceeded Goldman Sachs and Street expectations.

  Risks

  AI infrastructure spending slowdown, custom-compute share loss, and increased VMware competition.

Key data

• FY3Q26 total revenue$29.6bnIn line with Goldman Sachs at $29.6bn and the Street at $29.5bn.
• FY3Q26 AI semiconductor revenue$16.7bnUp 221% year on year; above Goldman Sachs and Street forecasts of $16.1bn.
• FY3Q26 gross margin75.0%85 bps above Goldman Sachs and 87 bps above the Street.
• FY3Q26 operating margin67.9%87 bps above Goldman Sachs and 105 bps above the Street.
• FY3Q26 operating EPS$3.32In line with Goldman Sachs at $3.33 and above the Street at $3.24.
• FY4Q26 total revenue guidance$34.8bnBelow Goldman Sachs at $36.2bn and the Street at $35.2bn.
• FY4Q26 AI semiconductor revenue guidance$21.7bnIn line with Goldman Sachs at $21.7bn and above the Street at $21.3bn.
• FY4Q26 operating-margin guidance66.0%Below Goldman Sachs at 67.5% and the Street at 66.8%.
• 12-month price target$525Based on 30x Goldman Sachs' normalized EPS estimate of $17.50.

Impact & implications

Goldman Sachs sees the result as a near-term tension between softer total-revenue and margin guidance and continued AI semiconductor momentum. The firm believes FY27 AI-revenue targets, XPU-customer share, and gross-margin trends will determine whether investors gain confidence in the expected 2027 custom-silicon ramps.

Risks

• AI infrastructure spending could slow.
• Broadcom could lose share in its custom-compute franchise.
• Competition in VMware could increase.

What to watch

• Any update to FY27 AI revenue growth targets on the conference call.
• Market-share trends at key XPU customers.
• The expected gross-margin trajectory through FY27.