According to Zhitong Finance APP, the competition between Broadcom (AVGO.US) and Nvidia (NVDA.US) has entered a new phase, as this semiconductor industry leader set a new record for orders in its recent financial report. Moreover, Broadcom revealed that one of its four potential new hyperscale customers has already begun production, prompting the company to significantly raise its AI revenue expectations for fiscal year 2026.
Despite the market's slight disappointment regarding Nvidia's financial outlook, analysts were shocked by the upward revision of Broadcom's expectations. The magnitude of Broadcom's forecast adjustment indicates that its business is likely to achieve years of growth in the coming years, providing a foreseeable outlook for further growth in hyperscale customer business.
However, investors should remain cautious; the market is not foolish. If you have been following Broadcom's developments, it is not difficult to notice that CEO Hock Tan and his team are fully leveraging the growing influence of custom chips, which are becoming a critical part of the most intensive and demanding training and inference workloads.
Notably, the news that OpenAI has decided to collaborate with Broadcom, moving from the design phase to the production phase, is exciting and could bring over $10 billion in order growth for Broadcom. Considering that Broadcom expects its revenue for fiscal year 2025 to reach $63.4 billion, it is understandable that the market pushed Broadcom's stock price to a new high last Friday, while Nvidia and AMD's stock prices faced sell-offs.
<h2>Broadcom: Revenue Accelerates Again in Fiscal Year 2026</h2>
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250908/1757313663418630.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250908/1757313663418630.png"/>
Broadcom's profitability is industry-leading, confirming its ability to enhance operational leverage while expanding in the custom AI chip sector. Additionally, the performance estimates for Broadcom's fiscal year 2026 have quickly reflected its potential for accelerated growth again, supporting a bullish view after the normalization of fiscal year 2025 performance.
Broadcom's management emphasized that XPU currently accounts for 65% of its semiconductor AI revenue base, and the record backlog of $110 billion has significantly increased due to the rapid transformation brought about by AI infrastructure growth. Even more promising, Tan hinted that, in addition to OpenAI, another hyperscale enterprise may begin production in the future, bringing further enhancements to Broadcom from 2027 onwards.
Broadcom's strong positioning in the overall AI market is not only due to the robust demand for its XPU ASIC market but also benefits from its Ethernet-based AI networking technology, which places it in a favorable position within the growing AI clusters.
Despite facing competitive risks from Nvidia's proprietary stack, Broadcom's incredible growth momentum and open Ethernet architecture align with its custom AI chips, enabling it to serve well-known and leading LLM customers looking to diversify their reliance on Nvidia's commercial chips and proprietary stacks
<h2>Broadcom: How Many More XPU Deals Will Happen?</h2>
However, has the market's optimism towards Broadcom gone too far? While the possibility of further upside surprises cannot be underestimated, it is necessary to consider how many more OpenAI-related deals Broadcom can capture. Hock Tan has made it clear that he is focused on the custom chip market centered around hyperscale customers, rather than the overall theory of AI infrastructure growth.
Additionally, management has indicated that custom chips are expected to dilute Broadcom's overall profit margins, as the role of custom chips in revenue composition will become increasingly important over time. Although the higher-margin leverage in software and networking businesses can mitigate these effects, the faster growth pace of custom chips may still impact Broadcom's operational leverage gains.
Therefore, while the current growth trend alleviates market concerns about subsequent economic downturns, it is still necessary to prepare for a normalization phase that may occur in fiscal year 2027. Numerous hyperscale companies and leading LLM players have the capability to drive the prospects of Broadcom's custom chips, while also possessing the necessary capital to enter the qualified production phase. Given that Broadcom's valuation has reached its highest level in a decade, if growth begins to show signs of weakening, the stock's valuation is likely to be adjusted downward.
<h2>Buy or Sell Broadcom Stock?</h2>
So, should you buy or sell Broadcom stock? Broadcom's expected EBITDA multiple has exceeded 31 times, reaching a five-year and ten-year high. <img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250908/1757313812546748.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250908/1757313812546748.png"/>
Based on the scale of commitments made by Broadcom's management regarding its AI revenue opportunities, it is clearly in a cyclical upswing. But can we really believe that this momentum can last forever? Broadcom's Ethernet networking opportunities have always been a key growth driver for the company, although XPU is expected to contribute increasingly to Broadcom's revenue in the future.
Therefore, when the growth of AI infrastructure potentially slows down, the market may begin to face greater pressure. The risk/reward of further elevating Broadcom's price-to-earnings ratio to higher levels seems increasingly tilted to the downside. For investors who ignore the potential slowdown and expect valuations to soar to a peak, this is not particularly wise. Overall, JR Research maintains a hold rating on Broadcom

AVGO

OpenAI

Broadcom's competition with NVIDIA intensifies, as Broadcom sets a new order record in its latest financial report and raises its AI revenue expectations for fiscal year 2026. Despite market disappointment regarding NVIDIA's outlook, analysts are shocked by the upward revision of expectations for Broadcom. The collaboration between OpenAI and Broadcom could lead to over $10 billion in order growth. Broadcom expects its revenue for fiscal year 2025 to reach $63.4 billion, with its stock price hitting a new high, demonstrating strong growth potential in the custom AI chip sector

Broadcom's valuation reaches a 10-year high, can a trillion-dollar order support the continuation of the "AI myth"?