Broadcom (AVGO) Powers the AI Boom — Bullish despite the Pullback
Broadcom (AVGO) is a critical but underappreciated force behind the artificial intelligence (AI) buildout, powering key layers of the infrastructure stack. While the stock has fallen more than 24% from its December 2025 highs, it is still up more than 62% over the past 12 months. Moreover, the company’s role across custom AI silicon, high-speed…
Broadcom (AVGO) is a critical but underappreciated force behind the artificial intelligence (AI) buildout, powering key layers of the infrastructure stack. While the stock has fallen more than 24% from its December 2025 highs, it is still up more than 62% over the past 12 months. Moreover, the company’s role across custom AI silicon, high-speed networking, and infrastructure software continues to deepen as hyperscalers expand. I remain bullish as Broadcom’s role in the AI boom looks more durable and diversified than the recent pullback suggests, creating a good opportunity.
The easiest way to misunderstand Broadcom is to treat it as just another semiconductor name benefiting from AI enthusiasm. In reality, Broadcom is becoming one of the most essential suppliers to the custom AI infrastructure market.
Its strength starts with custom application-specific integrated circuits (ASICs). As the largest cloud platforms increasingly look for alternatives to one-size-fits-all compute, Broadcom has emerged as the go-to partner for hyperscalers designing their own accelerators. That matters because this is not just a one-quarter revenue spike story. It is a design-win story tied to long product cycles, deep technical integration, and rising customer dependency.
Broadcom also has an advantage in networking, with its supply of switches, digital signal processors (DSPs), and interconnect technologies needed to move massive amounts of data within AI clusters. That is why I think its AI opportunity is broader than many investors appreciate. Broadcom is not only helping hyperscalers build the chips but also helping them move the data on which those chips depend.
Broadcom’s networking business may not attract the same excitement as custom ASICs, but it may be just as important to the long-term case.
As AI clusters grow more complex, networking increasingly becomes a bottleneck. Broadcom’s Tomahawk switches, high-end SerDes, and connectivity products are quietly becoming part of the core architecture for scale-out AI systems. That matters because even if the market debates what happens to a specific compute platform, the need for fast, efficient, and scalable networking does not go away.
I also think the company’s commentary around copper and optics is important. There has been a growing debate about how quickly AI data centers are transitioning to more optical connectivity. Broadcom’s view — that copper remains highly efficient within the rack up to certain speed thresholds — suggests that some of the market may be underestimating the durability of its current product positioning. In other words, Broadcom may have more time to monetize today’s connectivity mix than some investors assume.
One of the strongest reasons I stay bullish is the visibility Broadcom appears to have into future AI demand. Management recently pointed to more than $100 billion of AI chip orders for Fiscal 2027, supported by around 9–10 gigawatts of capacity and multiple major customers.
The customer list is also becoming more meaningful. Google’s (GOOGL) Tensor Processing Unit (TPU) ramp remains central, but the broader picture now includes expanding programs tied to Anthropic, Meta (META), TikTok, Fujitsu (FJTSY), and OpenAI. Even if some investors debate the exact pace of certain ramps, the broader takeaway is hard to ignore: Broadcom is no longer dependent on a single customer or a single AI architecture.
This is why I think the recent stock weakness is more about sentiment and valuation reset than a deterioration in fundamentals. If anything, the demand indicators appear to be improving. Broadcom’s AI revenue was already running at $8.4 billion in the latest quarter, and the next quarter’s AI revenue outlook of roughly $10.7 billion points to another major step up. That kind of acceleration is not consistent with a business heading into an AI air pocket.
Another reason I like Broadcom here is that it is not purely an AI hardware trade. The infrastructure software segment gives the company a second leg of growth and profitability that many AI-focused peers lack.
VMware is still the centerpiece, and while software results have not been as exciting as AI semis, this business contributes recurring revenue, solid margins, and enterprise relevance. Total contract value and annual recurring revenue trends remain supportive, and over time, I think the software portfolio can become more valuable as enterprises manage increasingly complex hybrid environments shaped by AI workloads.
That software base also makes Broadcom’s financial profile more attractive. This is a company that combines AI growth with strong gross, operating, and free cash flow margins. It is not capex-light in an absolute sense, but relative to many infrastructure stories, the economics are exceptionally strong.
The main pushback on Broadcom right now is that the AI mix may weigh on gross margins, especially as rack-scale systems and custom silicon become a larger share of revenue. That concern is fair. AI products are not always margin-neutral, and the mix shift can create noise in quarterly profitability. But I think the market risks focusing too much on whether gross margin moves 50 or 100 basis points and not enough on what happens to total operating profit and cash generation.
Broadcom continues to show that even if the mix creates some pressure at the gross margin line, the sheer magnitude of AI revenue growth can still drive much higher EBITDA, earnings per share (EPS), and free cash flow. That is the more important point. I care more about Broadcom’s ability to compound earnings power through the AI cycle than about preserving every point of historical margin structure.
According to TipRanks, Broadcom carries a “Strong Buy” consensus rating, with 27 Buy, two Hold, and no Sell ratings. Based on 29 Wall Street analysts, the average price target is $471.74, implying about 47.9% upside from the recent share price of $318.81.
Broadcom is one of the quieter winners of the AI boom, but its role is becoming harder to ignore. The company sits in the middle of custom AI chips, advanced networking, and infrastructure software, giving it exposure to multiple layers of the AI buildout rather than just one.
Yes, the stock has pulled back sharply from its highs, and yes, there are reasonable debates around mix and sustainability. Yet, the bigger picture still looks highly attractive to me: AI demand remains strong, customer concentration is improving, the networking franchise is underappreciated, and the software business adds resilience.
That is why I remain bullish on AVGO. I think the recent weakness has created a compelling opportunity in one of the most strategically important companies behind the AI boom.
