New Broadcom Rating After $10 Billion Repurchase Approval

Alright, let’s get into Broadcom’s (AVGO) earnings report and guidance from Wednesday night.

The cut-to-the-quick version for those of you who may be chomping at the bit: Based on the longer-term outlook for Broadcom’s custom AI silicon business, we’re upgrading the shares to a One rating.

Our price target for now remains $445.

The January Quarter

By the numbers, Broadcom delivered January quarter EPS of $2.05, two pennies ahead of the market forecast, on revenue that climbed 29.5% year over year to $19.31 billion versus the $19.26 billion consensus. Adjusted EBITDA of $13.1 billion, 68% of revenue was above guidance for 67%.

Semiconductor solutions revenue grew 52% compared to year-ago quarter to $12.52 billion with AI revenue of $8.4 billion up 106% year over year. The drivers? Robust demand for custom AI accelerators and AI networking with the custom accelerator business up 140% year on year.

Non-AI semiconductor revenue came in $4.1 billion, flat year on year, as gains in enterprise networking, broadband and server storage revenues were offset by declines in wireless. Infrastructure software revenue grew 1% to $6.80 billion, in-line with prior guidance. While only up modestly, the segment’s gross and operating margins of 93% and 78% are a key driver of Broadcom’s overall profitability.

AI networking revenue grew 60% year on year and represented one-third of total AI revenue. In Q2, we project AI networking to accelerate a lot more and grow to 40% of total AI revenue. We are clearly gaining share in networking.

During the quarter, Broadcom repurchased $7.8 billion or approximately 23 million shares of common stock and ended it with $14.2 billion in cash on the balance sheet. Along with the quarterly report, Broadcom’s board authorized an additional $10 billion share repurchase program effective through the end of calendar year 2026.

Guidance

For the current April quarter, Broadcom guided its revenue up 47% year over year to $22 billion, nicely ahead of the $20.50 billion market consensus.

With non-AI semiconductors expected to be up 4% to $4.1 billion and infrastructure software revenue up 9% to $7.2, it becomes clear the key driver of that year-over-year revenue growth will be custom AI chips and networking. Parsing the figures, Broadcom sees its AI semiconductor revenue clocking in at $10.7 billion for the quarter. That’s a quarter-over-quarter jump of more than 27% and points to the continued ramp in chip demand from Broadcom’s now-six custom AI chip customers, which include Google (GOOGL) , Meta (META) , OpenAI and Anthropic.

During the earnings call, Broadcom shared that it has “line of sight” for custom AI chip revenue in excess of $100 billion in 2027. That compares to the annualized revenue of around $42.8 billion for the current quarter. What’s driving that is the continued ramp in demand from those six customers, with Broadcom CEO Han Tock reassuring listeners that Meta’s custom AI chip effort is not only alive and well, but Broadcom is shipping product now and expects that to ramp considerably over the coming quarters.

On the topic of those six customers, Tock made comments that reminded us of how closely smartphone companies work with their chip suppliers. Tock said that Broadcom has visibility into the design roadmaps of its custom AI chip customers for the next two to three years, and in some cases four years.

Our Thoughts

What we saw and heard from Broadcom reaffirms not only our rationale for bringing the shares into the Portfolio but also our long-term $445 price target. The February revenue report we discussed earlier on Thursday for Foxconn and Dell’s (DELL) recent AI shipment guidance and even Nvidia’s (NVDA) market outlook bring a nice layer of support for Broadcom’s outlook. So too does the backlog comments from Ciena (CIEN) , which reported that “unprecedented AI-driven demand” led to a record $7 billion backlog, up from $5 billion exiting the prior quarter. For context, Ciena reported $1.43 billion in quarterly revenue on Thursday night.

Given the upside to our price target and support building for the shares, we’re upgrading our rating to a One from Two. We recognize the 50-day and 100-day moving averages near $334 and $348 are potential near term resistance levels, but we also know GTC 2026 will be next week, a potential catalyst for AVGO and NVDA shares as well as those for Marvell (MRVL) . While we’ve built up the Portfolio’s position over the last few months, should we see market forces pull the shares back between the $310 and $319 level, we’ll become more aggressive in the shares.

Against that multi-year outlook and because of the influence of its software margins, we applaud Broadcom's board for upsizing the company's buyback program. Noting the time frame, we would expect Broadcom to be active, especially with the shares still more than 20% off their early December high.

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At the time of publication, TheStreet Pro Portfolio was long AVGO, GOOGL, META and NVDA.