$AVGO | Broadcom has become one of the strongest players in the industry in two critical areas of AI infrastructure: custom AI chip design and high-speed networking. The company not only develops and manufactures chips (ASIC/XPU) designed to meet the specific needs of hyperscalers, but also provides the infrastructure that connects thousands of these chips. This dual capability makes it one of the leading AI infrastructure chip manufacturers outside of Nvidia. Its latest financial statement also demonstrates this. Now, why are there two nearly 20% drops? Let's look at the financial statement first, then we'll look at the overall picture.
$AVGO reported roughly $22.2 billion in revenue, a 48% growth compared to last year. Its AI semiconductor business reached $10.8 billion, growing by 143%. This figure now accounts for almost half of total revenue. They stated that they expect to increase AI revenue to $16 billion in Q3. For 2027, they reaffirmed that AI revenue will exceed $100 billion. One reason is that the market was expecting an upgrade, not just confirmation.
The customer side is also quite strong. Broadcom has confirmed six major custom AI customers. Among these, Google, Meta, OpenAI, and Anthropic stand out: They extended their TPU business with Google until 2031. They expanded their MTIA project with Meta until 2029. They have a massive 10-gigawatt custom chip agreement with OpenAI, with production starting in the second half of 2026. Anthropic is purchasing Google's TPUs in significant volumes through Broadcom, and new gigawatt agreements have been added. All of these agreements are long-term, high-gigawatt capacity contracts. This provides Broadcom with both high visibility and long-term revenue security.
Profitability was also very good. The adjusted EBITDA margin was at 69%. Maintaining such high margins while growing at this scale is a positive thing for investors. Free cash flow is also very strong at $10.3 billion. There's been an improvement in the software side compared to the past, but it's not yet at a point that justifies the VMware acquisition; this is one of the points to look at in several balance sheets.
The balance sheet is quite good, as you can see. Now let's look at it generally. The company's position in the ASIC field is very strong, and I think the demand for AI will continue in the medium to long term. However, the stock had largely priced in this positive story, and currently it's slightly expensive, but only slightly. With a market capitalization of around $1.83 trillion, it's now a very large company. It's not realistic to expect very sharp upward movements from companies of this size.
In my opinion, Broadcom is a good company in the long term. The AI infrastructure story is real and structural. However, it's not a very cheap opportunity at these levels. I see it more as a high-quality AI infrastructure investment. Therefore, I might take a position of around 3%. In the medium to long term, if AI investments continue as planned, I think it has a reasonable return potential in the 30% to 60% range. Expecting more would be a bit optimistic.
