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Broadcom seems to be in a solid position for a multi-year surge in AI, largely thanks to strong demand for XPUs from big tech and AI labs.
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The partnership with Alphabet has certainly lifted its visibility on Wall Street.
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The earnings structure is on the upswing, with high-margin infrastructure software making up a bigger slice of their earnings.
Broadcom (NASDAQ:AVGO) has carved out a significant role in the AI building infrastructure space. Its custom accelerators (XPUs), Ethernet networking products, and VMware Cloud Foundation software are now quite popular among various enterprises, particularly those running large-scale AI workloads.
The company is set to announce its quarterly and fiscal year results on December 11, 2025, which could really shape expectations for 2026 and influence its stock price. Nevertheless, it’s important to note that the stock is currently trading at a forward P/E ratio of 40.3, suggesting that much of the potential growth could already be reflected in its price. So, investors might want to consider their options—buy, sell, or hold off on profits before the earnings report.
Looking ahead, it’s probably wise for investors to pay attention to Broadcom’s forecasts for 2026 and 2027, which might be shared in future earnings calls. Management has hinted that revenue from AI could grow even quicker than the projected 50% to 60% year-over-year increase in fiscal 2025, mainly due to exceptional demand from three major hyperscaler clients, along with rapid expansion at a fourth one.
Broadcom anticipates that each of its three hyperscaler customers will deploy about 1 million XPUs in their AI clusters by 2027. These clients are increasingly opting for XPUs with multi-year expansion strategies.
Moreover, the company received a $10 billion order for XPU-based AI racks from a fourth customer in Q3 of 2025, with shipments expected to begin in the third quarter of 2026. Broadcom is focusing on seven major players in the large-scale language model market, four of which are already clients, while the rest show great potential.
Its ongoing partnership with Alphabet has proven to be a substantial growth driver. Since 2016, Broadcom has helped develop Alphabet’s in-house Tensor Processing Units (specialized AI chips), and the increasing use of these TPUs for training and inference is enhancing Broadcom’s long-term standing in the AI semiconductor sphere.
Future innovations may also see Broadcom increasing its advanced packaging, networking interconnects, and SerDes interfaces for new TPU generations. Their open-source Ethernet-based network solutions are being adopted by hyperscalers, especially for AI clusters exceeding 100,000 compute nodes. These high-performance, low-latency networking hardware options support various network configurations.
Contrasting with Nvidia’s proprietary offerings, Broadcom’s Tomahawk and Jericho switches provide alternatives that can help clients avoid vendor lock-in. The high-margin infrastructure software sector is now accounting for nearly 43% of Broadcom’s overall revenue. It’s worth noting that around 90% of VMware’s top 10,000 customers are using licenses for both traditional and AI workloads on-premises or within partner clouds, but many still have deployments across their data centers. This transition may take about two years but could establish a lasting revenue stream for Broadcom.
While Broadcom’s non-AI chip segment remained relatively stable in the third quarter, an uptick is anticipated in the fourth quarter, though it seems the recovery could take on a U-shape rather than a V-shape, which might impact the stock price.
Revenue for the fourth quarter is forecasted around $17.4 billion, representing a 24% increase from last year. Semiconductor sales are projected to rise 30% year-over-year to $10.7 billion, and sales for AI semiconductors are expected to grow 66% to $6.2 billion. Infrastructure software revenue is anticipated to increase by 15%, reaching $6.7 billion. Adjusted EBITDA for the fourth quarter is estimated at around 67%.
These expectations are already looking solid, but any better-than-expected results could boost Broadcom’s stock further after December 11.
Broadcom has several long-term growth drivers, but its rising valuation leaves little room for missteps. Therefore, for those looking to invest long-term, acquiring a small amount of stock through dollar-cost averaging might be a sensible strategy.
If you already own shares, holding off until December 11 might be the best course of action. At the end of the third quarter, Broadcom had a backlog of $110 billion, suggesting that significant stock price increases could continue, even at current levels.
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