TL;DR · 30-second read
The Short Version
Broadcom, one of America’s biggest chipmakers, reported sales that nearly doubled from a year earlier. It also predicted its artificial intelligence chip business will roughly quadruple by 2028. Its stock still slipped about 3%.
One worry: much of that future growth depends on just three buyers. Those are Google and the chatbot makers OpenAI and Anthropic. If any of them spends less, Broadcom feels it fast.
Broadcom’s chips power many of the artificial intelligence tools people now use. That makes its fortunes a rough gauge of whether the spending boom lasts.
Broadcom reported fiscal third-quarter results on September 2 and filed its quarterly report (a 10-Q) with the SEC on September 10, covering the three months ended August 2, 2026. Morningstar reported that the shares fell 3% after the release, even though, by Morningstar’s calculation, the August-quarter results implied 86% year-on-year growth and October-quarter guidance implied 93%.
Management also issued an outlook running through 2028. It calls for artificial intelligence revenue to quadruple from 2026 levels and for non-GAAP earnings per share, a measure that excludes items such as acquisition-related charges, to nearly triple to $30. Broadcom said OpenAI and Anthropic will become its two largest customers starting in 2027. It also pointed to a multiyear agreement with Google covering its custom AI chips.
Executive Summary
On paper, this was an exceptional report. Broadcom designs custom AI accelerators, which are chips built to one customer’s specification rather than sold off the shelf. It told investors that demand for them will keep compounding for at least two more years. The company supplies Google’s eighth-generation inference TPU, the tensor processing unit Google uses to run trained AI models for users. It expects enormous volume ramps at OpenAI and Anthropic. Morningstar, which rates the stock five stars with a $650 fair value estimate, said the 2028 guidance beat its own model.
The muted stock reaction is the more interesting signal. Morningstar noted the shares had fallen nearly 30% since the previous quarter. It read that decline as the market pricing in a risk that Broadcom misses its 2028 targets or that growth slows afterward. Long-dated guidance, however bullish, asks investors to trust a handful of customers’ spending plans years in advance. For many investors, that trust now comes with conditions: which customers, on what terms, and at what profitability.
For the wider infrastructure market, Broadcom’s outlook is a direct read on how aggressively the largest AI developers intend to build out computing capacity. It also shows how much of that capacity will run on custom silicon rather than general-purpose GPUs.
Great Numbers, Skeptical Market
Broadcom’s guidance is unusually specific and unusually far out. Most chip companies guide one quarter ahead. Broadcom put figures on 2028: AI revenue up fourfold from 2026 and roughly $30 of non-GAAP earnings per share. Morningstar calls the guidance credible and argues underlying AI infrastructure demand will keep rising through 2030. The market’s reaction was more cautious. A 3% post-earnings dip followed a slide of nearly 30% since the prior quarter.
That gap between guidance and share price reflects a familiar tension in AI hardware. Investors reward growth, but they discount growth that depends on a few enormous purchase decisions. When a company’s outlook already assumes a quadrupling, even strong confirmation can fail to move the stock. The debate shifts from whether demand exists to whether it holds beyond the guided window, and at what price.
Morningstar’s valuation shows how much future growth is embedded in its $650 estimate. That figure implies adjusted price-to-earnings multiples of 56 times fiscal 2026 and 34 times fiscal 2027, falling to 22 times on 2028 estimates. Put simply, the estimate looks reasonable only if the 2028 earnings arrive.
Diversifying Away From Google, Into Frontier Labs
Google has long been Broadcom’s anchor customer in custom accelerators. Two developments this quarter complicate that picture. First, Google split its TPU program: Broadcom supplies the inference chip, while MediaTek won the training chip, which is used to build the models in the first place. Morningstar argues the inference part is higher in volume and complexity. Still, the split shows that even Broadcom’s largest customer is willing to multisource.
Second, Broadcom expects OpenAI and Anthropic to overtake Google as its biggest customers from 2027. That diversifies Broadcom away from a single buyer. It also shifts exposure toward frontier-model developers, whose infrastructure budgets depend on how their own businesses and funding evolve. Morningstar acknowledges investors may worry about this spending but argues it is supported by improving AI model economics. That claim will be tested over the next two years rather than settled by this report.
Morningstar assigns Broadcom a High Uncertainty Rating and names customer concentration as its primary risk. The AI accelerator business rests on a handful of high-spending customers. Shifts in any one customer’s spending patterns can swing results and sentiment.
The Margin Question Behind the Growth
Broadcom is known for profitability. Morningstar credits it with free cash flow margins consistently above 40%, meaning over 40 cents of every revenue dollar becomes cash after capital spending. It projects free cash flow exceeding $50 billion a year by fiscal 2027. Much of that reputation was built on a mix of networking chips and infrastructure software, including VMware, acquired in 2023.
As custom accelerators grow to dominate revenue, investors will want to know whether profitability holds as the mix changes. Custom chips are negotiated with a few very large buyers who have real bargaining power, as Google’s decision to bring in MediaTek suggests. Morningstar’s bear case also flags moderating growth in Broadcom’s legacy software lines. That makes the economics of the AI business more important to the overall margin picture, not less.
None of this contradicts the demand story. It explains why demand alone may no longer be enough: investors are asking what each dollar of AI revenue is worth, not just how many dollars are coming.
Supply, Debt and Leadership
Broadcom depends heavily on TSMC to manufacture its chips, so any capacity constraint could limit how quickly it ships to customers. Morningstar believes Broadcom would be a priority TSMC customer because of its scale and long relationship. Even so, a quadrupling of AI revenue requires a matching step-up in manufacturing allocation.
The balance sheet looks manageable. As of October 2025, Broadcom held $16 billion in cash against $65 billion of gross debt, roughly half tied to VMware. Its gross debt-to-adjusted EBITDA ratio fell from 3.5 times after the deal to 1.5 times by the end of fiscal 2025. EBITDA stands for earnings before interest, taxes, depreciation and amortization. Leadership is a longer-term consideration. Morningstar identifies CEO Hock Tan as integral to Broadcom’s acquisition and operating strategy; he is contracted with the company through 2030, within the window in which the AI ramp is meant to play out.
Background
Broadcom is a semiconductor and infrastructure software company led by CEO Hock Tan, who has built it largely through acquisitions run for high efficiency. The largest recent deal was the 2023 purchase of virtualization software maker VMware. Broadcom reports revenue from products and from subscriptions and services, across the Americas, Asia Pacific and EMEA. In recent years its growth engine has become custom AI accelerators: chips it co-designs with large technology companies, beginning with Google’s TPU program.
Custom silicon has become a major alternative to off-the-shelf GPUs for companies spending heavily on AI computing. Its appeal is performance and cost tuned to one customer’s workloads. Broadcom’s traditional networking chips and VMware software still generate substantial cash flow, but the AI chip business is now the primary driver of its valuation. Its results are therefore closely watched as a barometer for AI infrastructure spending. Source: Broadcom Stock Fell 3% After Earnings Despite Immense AI Chip Demand (Morningstar), Morningstar’s analysis of Broadcom’s fiscal third-quarter results and 2028 outlook. Primary sources: Broadcom Inc. Form 10-Q for the quarter ended August 2, 2026 (SEC EDGAR, filed September 10, 2026).Sources