Broadcom Inc. (AVGO.US) pre-earnings, JP Morgan reaffirms "buy" rating! AI revenue growth momentum is strong, stock price may increase by 49%.

Chip giant Broadcom Inc.(AVGO US) will announce its first quarter earnings for the 2026 fiscal year after the US stock market closes on Wednesday. In a recent research report, J.P. Morgan stated that the expected increase in TPU demand and strong AI network business will drive Broadcom Inc.'s revenue, profits, and free cash flow in the first quarter to exceed the bank and market consensus expectations, leading to an upward revision of performance guidance. The bank reiterated its "overweight" rating for Broadcom Inc., with a target price of $475 in December 2026, representing nearly a 49% increase from the stock's Monday closing price of $318.82. Strong TPU and AI network business drive Q1 performance and Q2 guidance expected to exceed expectations J.P. Morgan stated that the demand for Broadcom Inc.'s AI products remains strong, mainly benefiting from the upward trend in TPU demand from Alphabet Inc. Class C and the strong AI network business. Non-AI semiconductor business (enterprise, server/storage, broadband) is expected to continue to gradually improve, with income synergy effects from VMware expected to continue. For the first quarter, J.P. Morgan expects the company's overall revenue to exceed $20 billion, with AI business revenue surpassing $9 billion (market consensus expectation is $8.1 billion). J.P. Morgan also stated that Broadcom Inc.'s second quarter revenue guidance will exceed market consensus expectations. The bank forecasts second quarter revenue to be above $21-22 billion, with AI business revenue above $10-11 billion (market consensus expectation is $8.96 billion), while the non-AI semiconductor business continues to improve. Strong AI business growth is mainly driven by strong AI network demand, continuous volume growth of the 3nm Ironwood TPU project, progress in Meta MTIA/ByteDance ASIC projects, and early shipments to OpenAI and SoftBank/ARM first-generation ASIC XPU projects. Strong growth prospects for AI business - AI revenue will exceed $120 billion in the 2027 fiscal year J.P. Morgan pointed out that Meta is slowing down its future generations XPU ASIC roadmap in the mid-term, but other ASIC customers of Broadcom Inc. are accelerating. Diversification of AI XPU customers will help mitigate any slowdown from a single customer. The bank expects Broadcom Inc.'s AI (ASIC+network) business revenue to exceed $65 billion in the 2026 fiscal year, driven by its core TPU customers, as well as volume from OpenAI and SoftBank/ARM first-generation XPU ASIC projects, and contributions from other AI ASIC customers such as Meta/ByteDance, along with strong AI network revenue growth. For the 2027 calendar year, J.P. Morgan believes that most TPU shipments (Ironwood and Sunfish) will be used to support external customer AI workloads, all driven by Broadcom Inc./Alphabet Inc. Class C's next-generation 3nm TPU ASIC. The bank expects Anthropic and OpenAI to contribute billions of dollars in revenue to Broadcom Inc. in 2027, while ByteDance and Meta will continue to contribute revenue. Regarding Meta, J.P. Morgan stated that its future generation projects (2nm Olympus, targeted for volume in 2028) have experienced some changes, but they continue to see the current generation projects (Athena, Iris, Arke) contributing $5-6 billion in ASIC revenue in the next two years, and Meta's overall commitment to ASIC/Broadcom Inc. remains high. The diversity of Broadcom Inc.'s ASIC customer base (Alphabet Inc. Class C, OpenAI, Anthropic, SoftBank/ARM, Meta, ByteDance, Alibaba Group Holding Limited Sponsored ADR, Baidu Inc Sponsored ADR Class A, Sambanova, xAI, Apple Inc., etc.), along with continued supply and demand tensions, will mitigate any growth slowdown risk from a single client (this has always been ASIC's business model - diversification of clients/projects reduces risk). As a manifestation of diversified AI customers, J.P. Morgan estimates that Alphabet Inc. Class C's TPU business will account for less than 45% of Broadcom Inc.'s overall AI revenue in the 2027 fiscal year, down from 60% in the 2025 fiscal year and 50-52% in the 2026 fiscal year - achieved against the backdrop of total AI revenue exceeding $120 billion by the 2027 fiscal year. Conclusion Overall, J.P. Morgan believes that Broadcom Inc. is a top pick among the semiconductor stocks covered by the bank, benefiting from its leading position in wireless, data center networks, AI/deep learning ASICs, storage and infrastructure silicon, hardware and software sectors, widely benefiting from the positive trends in these end markets. Broadcom Inc. is a dominant player in the technology infrastructure sector, with unmatched scale and technological capabilities in the industry, consolidating its leading position in multiple end markets. Broadcom Inc. remains the top pick among semiconductor stocks covered by J.P. Morgan, due to its leading exposure in AI infrastructure spending (the world's second-largest AI semiconductor supplier, the largest custom AI ASIC supplier, the largest cloud/AI network switching and routing chip supplier), diversified end market exposure, and industry-leading gross margin, operating profit margin, and free cash flow profit margin. J.P. Morgan's target price for Broadcom Inc. in December 2026 corresponds to a P/E ratio of 32 times (roughly in line with its AI peers in the 30-35 times range, considering its industry-leading operating/free cash flow profit margins, diversified business, and AI ASIC/network leadership position).