Goldman Sachs comments on Broadcom's earnings report: Concerns over gross margin lifted, explosive guidance implies significant upward revision of performance!

Goldman Sachs believes that Broadcom's better-than-expected earnings guidance and the company's latest statements on gross margin improvement, securing key production components, and new custom chip customers are guiding the market to re-evaluate its valuation. On March 4, Goldman Sachs analysts, including James Schneider Ph.D., stated in a report that the company's FY27 AI semiconductor revenue outlook significantly exceeds $100 billion, combined with an upward revision of quarterly guidance, suggesting that the stock price is likely to rise significantly. Broadcom's management indicated that it has secured the supply of key components (memory, lasers, packaging) needed to support revenue forecasts through FY28, and due to economies of scale and yield improvements, it no longer expects rack-level shipments to dilute margins in the coming quarters. Based on this, Goldman Sachs maintains a buy rating and includes it on the conviction list, raising the 12-month target price from $450 to $480, while significantly increasing the FY26/27/28 AI semiconductor revenue forecasts to $60 billion/$130 billion/$171 billion. Guidance Exceeds Expectations, Goldman Sachs Raises Revenue Forecasts Goldman Sachs believes that the current quarter's performance generally meets market expectations, but the 2Q guidance is significantly above consensus. The company expects 2Q revenue of $22 billion, with AI semiconductor revenue of $10.7 billion, which Goldman Sachs states reflects accelerating demand and improved visibility of backlog orders. Management has set higher mid-term targets, stating that with a maximum deployment of 10GW in data centers, FY27 AI semiconductor revenue could significantly exceed $100 billion, and FY28 is expected to continue growing. Goldman Sachs describes this as a shift in "expectation anchor." Under these assumptions, Goldman Sachs has raised its FY26, FY27, and FY28 AI semiconductor revenue forecasts to approximately $60 billion, $130 billion, and $170 billion, emphasizing that this is a substantial upward revision to investor models. Concerns Over Gross Margin Alleviated, Supply Chain Lock-In Becomes Key Signal Concerns over gross margins stem from potential material shortages and rising costs. Goldman Sachs states that Broadcom has proactively secured supplies of key components such as memory, lasers, and packaging, which is sufficient to support its revenue forecasts through FY28, thereby alleviating downward pressure on gross margins. The company has also retracted its earlier suggestion that "rack-level system shipments would dilute profits," believing that larger-scale production and yield improvements can absorb the impact. Goldman Sachs expects this will help Broadcom maintain its existing AI product profit structure in the medium term. Increased Customer Transparency, New Projects Entering Ramp-Up Phase Goldman Sachs believes that another key increment is the increased transparency of the customer list. Management has newly disclosed collaborations with customers such as Meta, Anthropic, and OpenAI, with six custom chip projects expected to enter the ramp-up phase. The company stated that the collaboration on Google's seventh-generation TPU remains strong and that the mid-term COT impact is limited, with Meta's custom XPU expected to ship multiple GW in FY27, Anthropic planning to deploy 3GW in FY27, and OpenAI targeting 1GW deployment in FY27 Significant Earnings Upgrade Reflects Valuation, Goldman Sachs Raises Target Price and Profit Assumptions Goldman Sachs has "rewritten" its profit path, raising its normalized EPS estimate from $12 to $16, resulting in a $480 target price based on a 30x price-to-earnings ratio, and stated that Broadcom's cost reduction pace in AI networking and custom silicon can keep pace with Nvidia. On the product front, Goldman Sachs is optimistic about the continued growth of Ethernet and switching chips, with Tomahawk 6 leading the way and Tomahawk 7 expected to ramp up strongly. The firm anticipates that network revenue will account for 40% of AI semiconductor revenue in Q2, maintaining a range of 33% to 40% thereafter. Goldman Sachs also highlighted risks, including a slowdown in AI infrastructure spending, loss of market share in custom computing, delays in inventory digestion for non-AI businesses, and intensified competition in the VMware space