AVGO: Broadcom Earnings Day — AI Chip Giant on Trial

At $313.84 per share, Broadcom carries a trailing P/E of 65.79 based on EPS of $4.77 over the last twelve months. That is a steep multiple relative to the broader S&P 500, but Broadcom is not a typical semiconductor company. The 2023 acquisition of VMware transformed Broadcom into a diversified infrastructure platform combining custom AI chips (XPUs), networking silicon, and recurring software revenues — a combination that commands a structurally higher valuation.

On an EV/EBITDA basis, the picture looks even more extended at 178.9x, reflecting how heavily investors are pricing future AI infrastructure buildout into the stock today. The 52-week range of $138.10 to $414.61 underscores the volatility this premium valuation creates: a significant re-rating downward occurred from the highs, bringing the stock back to levels where some analysts see renewed value.

The 247WallSt price target of $454 over 12 months implies roughly 45% upside from current levels — a target premised on continued AI revenue acceleration and VMware integration delivering on its margin promises. For investors comfortable with elevated multiples in high-growth platforms, the current pullback from all-time highs may represent a compelling entry point. For value-focused investors, the EV/EBITDA of 178.9x warrants caution.

Broadcom's trailing four quarters tell the story of a company in genuine earnings acceleration, though with notable quarterly variation driven by the VMware integration cycle and AI chip demand phasing.

Q1 FY2025 (February 2025) posted revenue of $14.92 billion with net income of $5.50 billion, delivering a healthy 36.9% net margin and EPS of $1.14. Q2 saw revenue edge up to $15.00 billion but net income dipped to $4.97 billion (33.1% margin) and EPS slipped to $1.03 — a sign that VMware cost integration was still running through the P&L. Q3 showed further margin compression, with revenue rising to $15.95 billion but net income falling to $4.14 billion and a 26.0% margin, EPS of $0.85.

Then Q4 FY2025 delivered a blowout: $18.02 billion in revenue, $8.52 billion in net income, a 47.3% net margin, and EPS of $1.74 — a dramatic swing that validated Broadcom's thesis that the VMware acquisition would generate substantial margin expansion once fully integrated.

Today's Q1 FY2026 report is expected to show record revenue once again. Benzinga described the stock as 'on the ropes' heading into earnings, while Investopedia noted traders are pricing in significant post-earnings movement. The consensus is optimistic on revenue but the stock's reaction will depend heavily on AI XPU guidance and VMware churn commentary.

Broadcom's balance sheet reflects the realities of a company that made one of the largest technology acquisitions in history. The Debt/Equity ratio stands at 0.80 — elevated but not alarming for a company generating Broadcom's level of free cash flow. The Current Ratio of 1.71 indicates adequate short-term liquidity, and the company is actively paying down VMware acquisition debt.

Free cash flow per share of $1.58 in Q4 FY2025 underpins both the dividend program and debt reduction. Broadcom has consistently returned capital to shareholders through dividends — the company has a track record of regular dividend increases that appeals to income investors alongside growth investors.

Gross margin of 68% in Q4 FY2025 is a standout figure — among the highest in the large-cap semiconductor space. This reflects the high value-add nature of Broadcom's custom silicon and the recurring nature of its VMware software revenues, which carry inherently superior margins to hardware alone. Return on Equity of 10.5% appears modest given the valuation but reflects the dilution and goodwill load from the VMware deal; as goodwill amortises and earnings compound, ROE should improve materially.

The central investment thesis for Broadcom rests on its custom AI chip (XPU) business. Unlike Nvidia, which sells general-purpose GPUs, Broadcom designs custom accelerators for hyperscalers — most notably Google's Tensor Processing Units (TPUs) and Meta's Meta Training and Inference Accelerator (MTIA). These bespoke chips are purpose-built for specific AI workloads, often delivering superior performance-per-watt for those applications at lower cost than off-the-shelf GPUs.

Broadcom has guided for its total addressable market in custom AI accelerators to reach $60-90 billion by 2027, driven by three hyperscale customers (widely understood to be Google, Meta, and a third unnamed partner). This single data point — if realised — would represent a transformational revenue opportunity that dwarfs Broadcom's current semiconductor revenues.

Zacks highlighted the key investor question ahead of today's earnings: buy Broadcom as the custom AI chip play, or choose Nvidia for the broader AI infrastructure exposure? The Zacks analysis argues both can coexist as the AI infrastructure buildout is large enough to support multiple winners — but Broadcom's more concentrated customer base creates both upside concentration and execution risk.

MarketWatch framed today's earnings as a test of whether Broadcom can 'break the software curse' — the tendency for large software acquisitions (VMware included) to initially disappoint before integration benefits materialise. Q4 FY2025's margin expansion suggests the integration is delivering, but today's report will be closely watched for any signs of VMware customer churn or pricing pressure.

The forward estimates for Broadcom are eye-catching. Consensus estimates project Q1 FY2028 (February 2028) revenue of $41.2 billion with EPS of $4.31 — compared to the $14.92 billion revenue reported in Q1 FY2025 just three years earlier. By Q4 FY2028, revenue is estimated to reach $49.2 billion with EPS of $5.12.

If these estimates prove accurate, Broadcom will have roughly tripled its revenue over a four-year period — a remarkable growth trajectory for a company already generating over $60 billion in annualised revenue today. The implied revenue CAGR of approximately 35-40% from FY2025 to FY2028 is powered almost entirely by the AI XPU business scaling alongside the VMware software base.

At today's price of $313.84, the stock trades at approximately 61x the FY2028 EPS estimate of $5.12 — still a premium, but more defensible if the revenue trajectory holds. The 247WallSt $454 12-month target implies the market will re-rate AVGO toward its highs once AI revenue visibility improves post-earnings.

Key risks to the forward outlook include: hyperscaler capex cycles (any slowdown in Google or Meta AI investment would hit custom XPU volumes), competition from internal chip programmes at hyperscalers, VMware integration risks, and broader semiconductor cycle dynamics. The Benzinga pre-earnings analysis characterised the stock as 'looking on the ropes' — acknowledging that despite strong fundamentals, the 25% drawdown from highs reflects real uncertainty about near-term AI spending rates.

Today's Q1 FY2026 earnings report — particularly AI revenue guidance and VMware ARR commentary — will be the primary catalyst determining whether AVGO recovers toward its highs or faces further multiple compression.