Broadcom shares jump as HSBC lifts stock to Buy on underestimated ASIC potential

HSBC has upgraded Broadcom (AVGO) to Buy from Hold, significantly raising its target price to $400 from $240, citing a substantial upward revision in ASIC revenue estimates and easing concerns over wireless and VMware. The bank now projects Broadcom's ASIC revenue to reach $28.4 billion in FY26 and $42.8 billion in FY27, well above consensus, driven by hyperscaler demand for custom silicon and strong ASP growth. This re-rating potential, coupled with the 58% implied upside, led to Broadcom shares jumping over 3% on the news.

Analysis

HSBC has issued a significant upgrade for Broadcom (AVGO) to Buy from Hold, accompanied by a substantial target price increase to $400 from $240. The core driver for this revision is a dramatically more optimistic outlook on the company's Application-Specific Integrated Circuit (ASIC) business, with HSBC's revenue estimates for FY26 ($28.4 billion) and FY27 ($42.8 billion) now standing 42% and 69% above consensus, respectively. This growth is predicated on accelerating hyperscaler capital expenditure shifting towards custom silicon, which is projected to drive a 92% year-over-year increase in Broadcom's blended ASIC average selling prices in FY26. Furthermore, previous headwinds are now seen as diminishing; concerns over Apple's chip in-sourcing have eased, with forecasts now indicating 88% of Apple products will retain Broadcom parts into FY26, and the VMware acquisition is expected to deliver stable revenue growth through the ongoing transition to subscription models. HSBC justifies its 32x FY27 P/E target multiple, a 10% premium to Broadcom's 3-year peak, by arguing that the pronounced ASIC growth opportunity warrants a fundamental re-rating of the stock.

Key Decisions for Investors

• Investors should re-evaluate Broadcom's earnings potential, as HSBC's analysis suggests current consensus estimates for the ASIC segment may be significantly understated, presenting a potential source of upside.
• Given the 58% implied upside to the new target price and the dissipation of key risks related to the Apple and VMware businesses, initiating or adding to a long position could be considered.
• Monitor hyperscaler capex reports and announcements on Broadcom's ASIC customer pipeline, as these are the primary catalysts underpinning the bull case and the stock's potential for a valuation re-rating.