Prediction: This Artificial Intelligence (AI) Inference Specialist Is Going to Soar After June 3

Broadcom’s AI revenue is accelerating sharply, rising 106% year over year to $8.4 billion in fiscal Q1, with fiscal Q2 AI chip revenue guided to $10.7 billion and total revenue to $22 billion (+47% year over year implied). Management also signaled a path to more than $100 billion of AI chip revenue in 2027, while consensus earnings estimates call for EPS growth of 67% in fiscal 2026, 61% in fiscal 2027, and 27% in fiscal 2028. The article argues the stock’s valuation is rich at 87x trailing earnings, but the strong growth outlook could support significant upside.

Analysis

AVGO is increasingly a duration trade on inference capex rather than a simple semiconductor multiple story. If inference really becomes the dominant workload mix, the market will start valuing Broadcom less like a cyclical chip vendor and more like a toll collector on hyperscaler AI efficiency budgets, which supports a structurally higher earnings multiple despite the headline P/E. The second-order effect is that custom silicon gains share not because it is universally better, but because large buyers are optimizing for power, latency, and unit economics at scale, which favors a concentrated supplier base and reinforces AVGO’s pricing power.

The key market misread is likely the slope of earnings revisions, not the absolute level. Consensus appears to be anchoring to near-term revenue ramps while underappreciating how quickly mix shift, operating leverage, and incremental content per rack can compound once design wins move from pilot to deployment. That creates a setup where each quarter’s guidance can reset the out-year model higher, and the stock can re-rate even without a dramatic beat if the company simply confirms the next leg of the AI roadmap.

Main risks are timing and concentration. If hyperscaler spending pauses for a quarter or two, AVGO’s premium multiple can compress fast because the stock is owned as a beneficiary of an AI capex supercycle; any capex digestion phase would hit the name harder than the sector. There is also competitive risk from in-house silicon at the largest customers, but that is more of a share-of-wallet issue than an outright displacement threat near term, since the ecosystem still needs a few trusted vendors to absorb complexity and supply-chain execution risk.

The contrarian view is that the market may already be paying for a very optimistic 2027-2028 path, so the cleaner edge is not chasing outright here, but using catalysts to express a relative-value view. If upcoming guidance confirms accelerating AI revenue and raises the long-range trajectory, the next leg should be in estimate revisions rather than multiple expansion alone. If guidance disappoints even slightly, the downside is likely to be sharp because expectations have shifted from growth company to AI infrastructure bellwether.

Key Decisions for Investors

• Stay long AVGO into the next earnings/guidance window, but size modestly and use any post-print volatility to add only if management confirms the 2027 AI revenue ramp; upside is driven by revision momentum, not multiple expansion alone.
• Pair trade: long AVGO / short a basket of higher-multiple AI infrastructure names with less earnings visibility over the next 1-3 months; AVGO has the cleaner fundamental torque if inference spending is the real inflection.
• Buy AVGO call spreads 3-6 months out rather than outright calls to express the bullish thesis with defined downside; best if implied volatility remains elevated into the print.
• Watch for signs of hyperscaler capex digestion over the next 2 quarters; if any large customer signals delay or internal silicon substitution, reduce AVGO exposure quickly because the stock will de-rate faster than the group.
• For portfolios already long NVDA, consider trimming some beta and rotating a portion into AVGO as a relative winner if the market continues to price inference share gains and custom silicon penetration.