This AI Chipmaker Looks Like a Bargain With AI Revenue Set to Double Again Next Year

Broadcom expects AI semiconductor revenue to more than double in fiscal 2027 and double again in fiscal 2028, underscoring sustained demand for its custom AI ASICs. Fiscal Q2 revenue rose 48% year over year to $22.2 billion, above its $22 billion outlook, while net income increased 88% and AI semiconductors accounted for more than 60% of sales. Despite these fundamentals, AVGO is up just 3% in 2026 versus a 13% S&P 500 gain and trades at roughly 19x forward earnings, supporting the article's bullish valuation thesis.

Analysis

The key valuation question is not whether AVGO can grow AI revenue, but whether investors will underwrite a durable shift from merchant GPUs toward hyperscaler-owned ASIC programs. ASIC adoption is economically disruptive to NVDA at the margin: once a customer commits to a custom architecture, Broadcom captures design, networking and long-duration supply-chain content while the customer reduces exposure to Nvidia's full-stack pricing. The second-order beneficiary is TSMC (TSM), whose advanced-node and CoWoS capacity becomes a shared bottleneck; the likely loser is not necessarily NVDA revenue near term, but its incremental gross-margin and multiple premium if custom-silicon penetration rises.

The company forecast should be treated as backlog/conversion visibility rather than an earnings estimate until management discloses customer concentration, wafer commitments, packaging availability and the split between compute ASICs versus networking. The immediate catalyst is the next two earnings prints: sustained AI growth plus gross-margin expansion would force upward FY27/FY28 estimates and support multiple re-rating over 1-3 months. Over 6-18 months, the central risk is that a small number of hyperscalers defer capex, shift designs internally, or find ASIC performance insufficient for fast-changing frontier-model workloads; any of these would expose the concentrated nature of custom-chip programs.

Consensus may be too focused on headline AI growth and too dismissive of the non-AI base. A higher AI mix can raise consolidated margins, but it also makes AVGO's earnings more correlated with hyperscaler capex and advanced-packaging supply. The appropriate comparison is therefore less a broad semiconductor multiple and more a discounted basket of AI infrastructure cash flows, with a valuation discount warranted until multi-customer design wins convert into recurring production ramps.

Key Decisions for Investors

• Initiate a 6-12 month long AVGO position on post-earnings confirmation that AI revenue guidance is maintained or raised and gross margin expands sequentially. Target a 15-25% return from estimate revisions and partial multiple re-rating; exit/reduce if AI guidance is cut, a major customer concentration metric worsens, or gross margin contracts despite mix improvement.
• Express the custom-silicon substitution thesis as long AVGO / short a smaller notional NVDA position over 3-6 months, rather than an outright NVDA short. This isolates rising ASIC penetration from broad AI-capex upside; cover the short leg if NVDA data-center growth or gross-margin guidance accelerates materially while AVGO's AI conversion disappoints.
• Add TSM as a complementary 6-18 month beneficiary only if management commentary confirms continued CoWoS/advanced-packaging tightness and utilization. The trade fails if packaging capacity additions outpace demand or leading-edge customer inventory builds become visible.
• Do not use the stated forward P/E alone as an entry signal. Set an alert around the next earnings release for disclosed backlog, customer prepayments/commitments, and ASIC production timing; absent these data, treat the long as a position-sized watchlist candidate rather than a maximum-conviction allocation.