Investors are buzzing about chipmakers as the AI boom accelerates. Major tech firms now prefer building in-house AI silicon instead of relying on Nvidia’s (NVDA) chips. Broadcom (AVGO) has emerged as a key winner in that custom-chip trend.
Last year, AVGO stock nearly doubled on surging demand for its AI-focused processors and networking gear. And this momentum has no sign of slowing down. Recently, Broadcom announced an expanded multiyear deal with Meta (META) to co-design AI data center chips. The tie-up covers multiple processor generations through 2029 and kicks off with Meta committing over 1 gigawatt of computing capacity.
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The key question for investors now is whether this long-term contract justifies buying the stock at its current lofty valuation. Let's try to find the answer.
Broadcom Expands AI Infrastructure Role
Beyond Meta, the Broadcom deal. The company also announced a major deal with Alphabet's Google (GOOG) (GOOGL). In this deal, Broadcom will develop custom AI chips for Google’s data centers under a long-term pact through 2031. Not only did the chipmaker expand its collaboration with AI startup Anthropic, agreeing to supply about 3.5 gigawatts of AI compute capacity via Google’s hardware. These contracts strengthen Broadcom’s role as an AI-hardware partner to the biggest cloud players.
On the product front, Broadcom is reportedly launching new optical network ASICs and GPU alternatives to fend off Nvidia (NVDA), though details are scant. And in a show of financial strength also, the board authorized a fresh $10 billion share repurchase program. All told, under CEO Hock Tan, Broadcom has become a go-to partner for AI infrastructure, winning design contracts from big names like Meta, Google, and Amazon (AMZN).
How Did Broadcom Stock Perform?
Broadcom’s stock has been on a tear lately. Over the past 12 months, AVGO has been up well over 110% on the AI frenzy. The rally peaked in late 2025, and the shares pulled back into early 2026 as short-term volatility returned. Technically, AVGO remains above its 50-day and 200-day moving averages, a sign the uptrend is intact. However, the stock has already priced in a lot of good news, so any slip could be a buying opportunity if one believes the AI story holds.
Broadcom’s valuation is high, like other semiconductor giants. Its price-to-sales ratio of 26 is substantially above the sector median of 3, indicating an expensive stock. Similarly, the price-to-book ratio is 22 compared to the sector median of 3, further reflecting a premium pricing.
Basically, investors are paying for very strong growth. Bulls argue the AI boom justifies the premium; Broadcom’s revenue and earnings are growing at 30%-plus rates. But skeptics note that at today’s multiples, even a minor stumble could cause a big pullback. On any yardstick, AVGO is not cheap relative to peers.
www.barchart.com Meta Deal Sparks Broadcom Rally
News of the Meta partnership gave AVGO a short-term lift. Once announced, Broadcom stock popped roughly 3%. Investors liked that it cements Broadcom’s role in Meta’s ambitious AI plans. The deal means Broadcom will manufacture multiple generations of Meta’s “MTIA” AI accelerators and networking chips for inference tasks.
Importantly, the initial phase involves deploying at least 1 gigawatt of AI computing capacity, enough to power 750,000 homes on average. Meta CEO Mark Zuckerberg said this helps “build out the massive computing foundation” for his company’s future AI features.
That said, META stock barely budged, suggesting the deal’s value is seen as a bigger gain for Broadcom. In effect, Wall Street is treating this as another long-duration design win for AVGO, but any real benefit won’t show up in revenue until 2027 and beyond.
Broadcom Records Strong First Quarter
Broadcom delivered another strong quarter, with results highlighting continued momentum in its AI-driven business.
For fiscal Q1 2026, revenue reached $19.3 billion, up 29% year-over-year (YoY) and ahead of expectations. Growth was largely driven by AI-related semiconductor demand. CEO Hock Tan noted that AI chip revenue totaled $8.4 billion, more than doubling from the prior year.
Profitability also improved. Net income came in at $7.3 billion, or $1.50 per share, exceeding consensus estimates. Margins remained elevated, with adjusted EBITDA holding near 68%.
Cash generation was solid, too. Broadcom produced about $8.2 billion in free cash flow during the quarter. The company returned significant capital to shareholders, allocating roughly $10.9 billion to share repurchases and dividends.
Looking ahead, management guided Q2 revenue to around $22 billion, suggesting continued growth. The broader outlook remains tied to sustained demand for AI and networking infrastructure.
CEO Tan summed it up: “Broadcom achieved record first quarter revenue on continued strength in AI semiconductor solutions”.
Wall Street's Take on AVGO Stock
Wall Street remains broadly constructive on Broadcom’s long-term outlook, though opinions vary on valuation.
According to compiled data from Barchart, AVGO stock carries a “Strong Buy” consensus. Out of 42 analysts, most recommend buying the shares, with a smaller number suggesting holding positions. The average 12-month price target stands near $469, implying roughly 16% upside from current levels.
Some firms are more optimistic. Truist Financial recently maintained a “Buy” rating and raised its price target to $545, pointing to a growing AI pipeline and strong backlog. Morgan Stanley has also taken a positive stance, assigning an “Overweight” rating with a $470 target.
Others remain cautious. RBC Capital Markets lowered its target to $340 and kept a “Sector Perform” rating, citing concerns around elevated valuation and limited room for execution missteps.
Overall, analysts generally agree on the key strengths. These include Broadcom’s solid balance sheet, expanding AI opportunities, and consistent shareholder returns.
www.barchart.com On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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