Broadcom

Investment Thesis

Broadcom’s custom AI ASIC revenue from hyperscaler customers is scaling faster than consensus models, and VMware integration is progressing with meaningful cross-sell traction. We maintain a Buy rating with a price target of $205.

What Changed

Custom AI silicon represents the key upward revision to our model. Broadcom’s XPU (custom accelerator) business for Google TPUs and Meta’s MTIA chips is growing at a rate that suggests these hyperscalers are meaningfully diversifying away from NVIDIA — and Broadcom is the primary beneficiary.

This is strategically significant: it demonstrates that NVIDIA’s ASIC market share is not guaranteed, and it positions Broadcom as the infrastructure layer for customers who want custom silicon without building a chip team from scratch.

VMware Integration

The VMware acquisition integration has exceeded management’s own synergy targets. Cross-selling VMware’s virtualization stack to Broadcom’s existing semiconductor customers is generating new enterprise relationships that would have been impossible pre-acquisition.

The shift of VMware licensing to a subscription model is also creating revenue visibility and cash flow predictability that supports a higher multiple.

Risks

Customer concentration is a significant risk. A large portion of the AI ASIC revenue is concentrated in two or three hyperscaler relationships. Any change in their custom silicon strategy would have an outsized impact on estimates.

The semiconductor cycle is also a risk. While data center is booming, Broadcom’s networking and enterprise campus businesses are still in a correction phase.