Broadcom's CEO Has Line of Sight to $100 Billion in AI Chip Revenue. Is the Stock a Buy?

Key Points
CEO Hock Tan sees AI chip revenue alone exceeding $100 billion in 2027.
This robust outlook is based on insights Broadcom has into its customers' long-term deployment plans.
Dependency on a small group of customers is a risk, but the stock is trading at an attractive valuation relative to expected earnings growth.
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Broadcom (NASDAQ: AVGO) is one of the most valuable semiconductor companies by market cap (currently valued at $1.5 trillion). It has been a solid chip stock to ride the artificial intelligence (AI) boom over the past few years, and CEO Hock Tan just revealed how big its opportunity could become.
Last quarter, revenue surged 29% year over year to $19.3 billion. Management expects fiscal second-quarter revenue to increase 47% year over year to $22 billion.
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However, the big reveal was Tan's updated fiscal 2027 outlook. He said Broadcom has "line of sight" to generate over $100 billion in revenue next year. This is a large business that supplies custom chips (accelerated processing units, or XPUs), networking gear (the components that connect chips), and software for data centers, but Tan emphasized that this outlook applies only to AI chips.
What is baked into Broadcom's outlook
Management bases this outlook on specific signals it is seeing from its customers.
Broadcom benefits from visibility into customers' AI development plans and capacity needs. Key customers include Alphabet's Google, Anthropic, Meta Platforms, OpenAI, and two other unnamed customers. Google's plans to ramp its next-generation Ironwood chip and OpenAI's plan to deploy its first custom chip are two specific catalysts that factor into Broadcom's revenue outlook.
Another pillar of the company's outlook is the growing demand for Tomahawk 6 switches and other networking products. Management guided for growth in AI-related networking revenue to accelerate in fiscal Q2.
The surge in networking demand is significant, as customers typically spend on these components before deploying AI accelerators, such as Broadcom's XPUs. Demand in networking fuels more chip demand.
Tan also bases the 2027 outlook on Broadcom's supply chain. It has already locked in the leading-edge wafers, high-bandwidth memory, and other components it needs to supply chips to customers through 2028. This mitigates risks around chipmaking bottlenecks, particularly the limited supply of memory.
Why buy Broadcom stock
The risk to watch is customer concentration and broader data center spending cycles. Broadcom is heavily dependent on demand from six key customers. Anything that slows their data center build-outs could derail Broadcom's momentum.
Still, top AI companies are making long-term investments in AI infrastructure, and importantly, tech giants like Google and Meta have the cash to spend. This potentially sets up more highs for the stock over the next few years.
The stock's recent pullback has brought the forward price-to-earnings multiple down to 28, with analysts still projecting 41% annualized earnings growth over the next few years. Given its strong outlook and demand trends, Broadcom is still one of the best chip stocks to profit from the ongoing infrastructure build-out.
Should you buy stock in Broadcom right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.