Broadcom’s AI Momentum Could Be Far From Over

Key Points

• Broadcom topped Q1 estimates and raised Q2 guidance, but CEO Hock Tan's commentary on 2027 AI chip revenue may be the bigger story.
• The company walked back earlier warnings about gross margin pressure from system sales, and analysts think they know why.
• Post-earnings price target revisions suggest Wall Street sees meaningful upside from current levels, with every updating analyst maintaining a bullish rating.

Semiconductor behemoth Broadcom NASDAQ: AVGO scored a solid win after its latest earnings release, seeing its shares rise approximately 4.8% following the beat-and-raise report. Outside of the company’s Q1 fiscal year 2026 (FY2026) numbers and Q2 guidance, Broadcom provided several other key pieces of commentary that should give investors confidence. Furthermore, Wall Street analysts became increasingly assured of Broadcom’s outlook, with price targets generally moving higher.

Broadcom Boosts Forecasts: Sees AI Sales Surging in 2027

In Broadcom’s Q1, revenue and adjusted earnings per share (EPS) both came in better than expected. Additionally, the firm’s Q2 revenue guidance of $22 billion significantly exceeded estimates. However, Broadcom also provided important updates regarding the company’s long-term outlook.

In its Q4 2025 report, Broadcom said it had an artificial intelligence (AI) backlog of $73 billion, which it expected to convert into revenue over the following 18 months. While a large number, some investors were likely hoping for more at the time.

Luckily, in Q1, Broadcom said its 2027 visibility had “dramatically improved." CEO Hock Tan said, “Today, in fact, we have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027.” This statement indicates a significant acceleration in Broadcom’s AI growth forecasts.

The company’s past projection of $73 billion backlog over 18 months (six quarters) would imply around $12.2 billion in average quarterly AI revenue. Meanwhile, $100 billion in 2027 (four quarters) would imply $25 billion in quarterly AI revenue. Thus, the company’s new forecast implies around a doubling of Broadcom’s AI revenue run rate in 2027. This backs up the company’s statement of dramatically improved visibility.

AVGO’s Gross Margin Confusion: BofA Points to Price Hikes for Anthropic

Broadcom also notably backtracked on its previous statements that higher AI sales would impact gross margins throughout 2026. In the latest call, Hock Tan said, “We will not be affected by the gross margin and by more and more AI products going out.” This contrasts favorably with what Chief Financial Officer Kirsten Spears said in Q4 2025. She noted that in the second half of 2026, gross margins “will go down.” 

This original statement came as Broadcom would be shipping more “systems” in 2026, or servers that package its processors alongside other components, like memory. Because systems pass on soaring memory chip costs to customers, they would come with a lower gross margin. Broadcom is providing these systems to the AI lab Anthropic.

The reason behind Broadcom shifting its gross margin forecasts is unclear. However, analysts at Bank of America seem to have come up with a plausible explanation: Broadcom is raising the prices it charges Anthropic. In doing so, Broadcom can offset the gross margin dilution that its system sales would otherwise create. If this is the case, it would be a telling demonstration of Broadcom’s technological prowess allowing it to wield pricing power.

With few custom chip developers that have Broadcom’s capabilities and AI labs placing a premium on fast infrastructure deployment, customers may have a limited ability to push back on price increases.

Updated Price Targets Signal More Upside for Broadcom

The MarketBeat 12-month consensus price target on Broadcom now sits near $435. This figure implies solid upside potential to the tune of more than 20%. However, observing price targets updated after the firm’s earnings report provides some interesting information. 

Among over five updates tracked by MarketBeat, the average target rose by approximately 3%. This shows that analysts felt Broadcom’s report justified its solid but not explosive up-move.

Furthermore, among all targets updated after the report, the average is considerably higher than the consensus at approximately $489. This number suggests that shares could rise by over 35%.

Notably, all of these analysts maintained their Buy or Overweight ratings on AVGO. Analysts incorporating the latest data into their forecasts are among the most bullish on the stock, reinforcing Broadcom's Moderate Buy consensus rating.

AVGO’s AI Business Is Clicking as Forward P/E Settles

Overall, it's hard to argue that Broadcom’s AI business isn't firing on all cylinders at this point. The company substantially improved its outlook for 2027 and made a strong effort to assuage fears related to its gross margin. Still, investors will have to wait and see whether the company’s gross margin forecasts hold up, especially as memory prices continue to rise.

Amid this, Broadcom’s forward price-to-earnings ratio (P/E) near 26x is flashing some signs of undervaluation compared to history. The figure is moderately below its three-year average near 29x and significantly below its 52-week average near 36x.