Broadcom -- XPUs -- On A Tear -- September 8, 2025

Broadcom is getting a lot of attention now, and the stock is having a parabola move, as they say. 

It's all due to XPUs.

"The Secret Sauce," Michael Fitzsimmons, September 8, 2025. If unable to access due to paywall, the next link is just as good, at Morningstar:

• "Buckle up, torrid AI growth is accelerating," September 5, 2025. Link here. Morningstar raises its fair value estimate for Broadcom stock.
• fair value estimate: $325
• three-star rating
• moat: wide
• uncertainty rating: high

Broadcom’s AVGO July-quarter revenue rose 22% year over year to $16 billion, with $5.2 billion in artificial intelligence chip revenue rising 63% year over year. Management qualified a fourth custom AI chip customer, which it expects to drive an acceleration in AI revenue growth in fiscal 2026.

AI short- and long-term guidance significantly exceeded our expectations. Management expects up to $10 billion in incremental orders in the second half of fiscal 2026 from the new XPU customer, implying a nearly doubling of total AI revenue next year.

The $10 billion is wholly incremental to our prior forecast for 60% AI chip growth in fiscal 2026. Management indicated that the $10 billion in orders is just the beginning for its shipments to the new customer, which portends a rapid ramp-up to the level of other large customers, such as Google and Meta.

We see potential for even further upside for Broadcom’s XPU sales with three additional potential customers in talks with Broadcom. We surmise the new $10 billion customer might be OpenAI for an inference chip. We also believe Apple and Arm are part of Broadcom’s custom AI chip pipeline.

We raise our fair value estimate for wide-moat Broadcom to $325 per share, from $225, from a materially increased long-term AI chip growth forecast that includes a revenue ramp for the new XPU customer. Shares look fairly valued to us at our new valuation.

Our forecast assumes an acceleration of growth in fiscal 2026, with tapering, but still substantial growth thereafter. Management hinted at another growth acceleration in fiscal 2027 that would imply significant further upside to our updated forecast and valuation.

Shares rose a relatively modest 4% after hours, which implies to us that significant AI revenue upside was already baked in. The stock trades at all-time highs, which now appears justified to us, given the accelerating AI chip revenue opportunity.