Broadcom Positioned to Weather AI Downturn While Rivals Falter

Broadcom entered 2024 as one of the market's favorite AI plays, with shares reaching an all-time high in early June following strong second-quarter earnings. The company reported record second-quarter fiscal 2026 revenue of $22.2 billion on June 3, surpassing the consensus forecast of $22.1 billion and delivering record operating income of $14.9 billion with a 67.3% operating margin. The Semiconductor Solutions segment alone posted record revenue of $15 billion, with AI semiconductor products representing 49% of total company revenue.

Despite those results, the stock slid sharply after the June earnings release and continued declining as investor concerns mounted about the intensity of AI spending. In August, Goldman Sachs added to the pressure by dropping Broadcom from its US Conviction List, though it maintained a 'Buy' rating and noted that investors were diversifying away from concentrated AI bets into other market segments. Underneath the volatility lies a persistent fear that excessive AI capital deployment will eventually contract, pulling down valuations across chip stocks indiscriminately.

However, Broadcom's structure distinguishes it meaningfully from conventional AI semiconductor rivals. The company designs custom AI accelerators (called XPUs) in partnership with the largest cloud providers and AI labs—Google, Anthropic, OpenAI, Meta, and Apple—under multi-year contracts rather than spot purchases. Last quarter, Broadcom booked over $30 billion in AI orders but shipped only $10.8 billion, reflecting how far in advance customers commit capital for compute infrastructure. CEO Hock Tan disclosed that company visibility now extends to 2028, and Google's custom chip deal runs through 2031. Anthropic exemplifies the scale: the company is scaling from around 1 gigawatt of compute in 2026 to about 3 gigawatts in 2027, requiring hardware orders that must be placed years ahead of deployment. In June, Broadcom partnered with Apollo and Blackstone to construct a 20-gigawatt compute platform, backing Anthropic's buildout with a $35 billion initial funding round—a commitment unlikely if the underlying demand were ephemeral.

Beyond semiconductors, Broadcom operates two additional revenue engines. It manufactures the networking switches that interconnect AI accelerators within data centers, earning fees on both the chips and the infrastructure that binds them together. It also operates a substantial infrastructure software business, primarily VMware, which generates steady recurring revenue independent of AI cycle intensity. Last quarter's cash position stood at $19.6 billion, offset by $64.91 billion in debt (largely from the VMware acquisition), but that net debt figure appears manageable against a $2 trillion market capitalization.

Looking forward, management projects third-quarter revenue of approximately $29.4 billion, materially above the consensus estimate of $28.5 billion. Semiconductor revenue is expected to reach $20.5 billion, including $16 billion from AI products—a more than 200% year-over-year increase. Software revenue is forecast to grow 31% year-over-year to $8.9 billion. Broadcom still expects over $100 billion in AI chip revenue in fiscal 2027. Analysts have largely remained constructive: Bernstein and J.P. Morgan reaffirmed 'Buy' ratings on July 27 with price targets of $550 and $580 respectively, and Barclays reiterated its 'Buy' rating with a $500 target on July 24. The consensus from 41 Wall Street analysts is a 'Strong Buy' rating with an average price target of $519.35, implying 22% additional upside, and the highest target of $675 suggests 59% upside potential. That valuation premium reflects expected earnings-per-share growth of 70% in 2026 and 68% in 2027, before moderating to 34% in 2028 and 23% in 2029—growth trajectories justified by the contracted order backlog extending years into the future.