Broadcom(AVGO.US) ahead of earnings, Morgan Stanley reaffirms "Overweight" rating! AI revenue growth momentum is strong, and the stock price could rise by up to 49%

Jingdong Finance APP learns that chip giant Broadcom (AVGO.US) will announce its fiscal first-quarter 2026 results after the U.S. stock market closes on Wednesday. In a recent research report, JPMorgan stated that strong demand for TPUs and robust AI network business will drive Broadcom’s revenue, profit, and free cash flow in the first quarter to exceed both the bank’s and market consensus expectations, leading to an upward revision of earnings guidance. The bank reaffirmed its “Overweight” rating on Broadcom, with a target price of $475 by December 2026, representing nearly a 49% upside from Monday’s closing price of $318.82.

Strong Growth in TPU and AI Network Business Expected to Boost Q1 Results and Q2 Guidance

JPMorgan noted that demand for Broadcom’s AI products remains strong, mainly driven by rising demand for Google’s TPUs and the strength of AI network business; non-AI semiconductor segments (enterprise, server/storage, broadband) are expected to continue improving gradually, with revenue synergies from VMware expected to persist. For the first quarter, JPMorgan forecasts total revenue exceeding $20 billion, with AI revenue surpassing $9 billion (market consensus was $8.1 billion).

JPMorgan also expects Broadcom’s Q2 revenue guidance to be better than market consensus. The bank projects Q2 revenue to be above $21 billion–$22 billion, with AI revenue above $10 billion–$11 billion (market consensus was $8.96 billion), while non-AI semiconductor segments continue to improve. The strong AI growth is mainly driven by high demand for AI networks, ongoing volume expansion of the 3nm Ironwood TPU project, progress on Meta’s MTIA/ByteDance ASIC projects, and early shipments for OpenAI and SoftBank/ARM’s first-generation ASIC XPU projects.

Robust AI Business Growth Outlook — AI Revenue to Exceed $120 Billion in FY2027

JPMorgan pointed out that Meta is slowing down its future-generation XPU ASIC roadmap in the medium term, but other Broadcom ASIC customers are accelerating their efforts. Diversification of AI XPU customers will help mitigate risks from any single customer slowdown. The bank estimates that Broadcom’s AI (ASIC + network) revenue in fiscal 2026 will be over $65 billion, mainly driven by its core TPU customers, along with contributions from OpenAI, SoftBank/ARM’s first-generation XPU ASIC projects, and incremental contributions from Meta and ByteDance, supported by continued strong AI network revenue.

For the calendar year 2027, JPMorgan believes most TPU shipments (Ironwood and Sunfish) will be used to support external customer AI workloads, driven entirely by Broadcom/Google’s next-generation 3nm TPU ASICs. The bank expects Anthropic and OpenAI to contribute hundreds of billions of dollars in revenue for Broadcom in 2027, with ByteDance and Meta also continuing to contribute.

Regarding Meta, JPMorgan noted that there are some changes in its upcoming generations (2nm Olympus, targeted for volume in 2028), but current generations (Athena, Iris, Arke) are expected to contribute $5–6 billion in ASIC revenue over the next two years, and Meta’s overall commitment to ASIC/Broadcom remains high. The diversity of Broadcom’s ASIC customer base (Google, OpenAI, Anthropic, SoftBank/ARM, Meta, ByteDance, Alibaba, Baidu, SambaNova, xAI, Apple, etc.), along with ongoing supply-demand tightness, will help mitigate risks from any single customer’s slowdown — a core aspect of the ASIC business model, where diversification reduces risk.

As a reflection of customer diversification, JPMorgan estimates that Google’s TPU business will account for less than 45% of Broadcom’s overall AI revenue in 2027, down from 60% in FY2025 and 50–52% in FY2026 — all while total AI revenue is projected to grow to over $120 billion in FY2027.

Conclusion

Overall, JPMorgan believes Broadcom is a leader in wireless, data center networking, AI/deep learning ASICs, storage and infrastructure silicon, hardware, and software, benefiting broadly from positive trends in these end markets. Broadcom is a powerhouse in the tech infrastructure sector, with unmatched scale and technological capabilities, solidifying its leadership position across multiple end markets.

Broadcom remains JPMorgan’s top semiconductor pick, given its leading exposure to AI infrastructure spending (the second-largest AI semiconductor supplier globally, the largest custom AI ASIC provider, and the top cloud/AI network switch and routing chip supplier), diversified end-market exposure, and industry-leading gross margins, operating margins, and free cash flow margins. JPMorgan’s target price of $475 by December 2026 implies a P/E ratio of 32x (roughly in line with its AI peers’ 30–35x range, considering its industry-leading operating and free cash flow margins, diversified business, and leadership in AI ASICs and networks).