Despite Broadcom's failure to raise its full-year 2026 guidance as some investors had hoped—potentially triggering short-term stock pressure—Goldman Sachs reaffirmed its "Buy" rating. The Wall Street giant argues that Broadcom's dominance in custom chips is strengthening, with its AI business fundamentals appearing more robust than ever.
Broadcom reported strong Q4 results, with revenue reaching $18 billion, surpassing market expectations of $17.5 billion. More crucially, its Q1 2026 revenue guidance of $19.1 billion significantly exceeded analysts' $18.3 billion forecast, driven primarily by a 74% YoY surge in AI semiconductor revenue.
However, market reaction may reflect disappointment. Goldman analyst James Schneider noted that while the earnings and Q1 outlook were strong, management didn't formally update or raise its full-year 2026 AI revenue growth guidance. Given pre-earnings bullish positioning and accelerating AI momentum, this omission could trigger short-term pullbacks.
Goldman remains bullish long-term, raising Broadcom's 12-month price target from $435 to $450, urging investors to view any weakness as a buying opportunity. The bank believes Broadcom's custom chip (XPU) leadership solidifies its position in low-cost inference for hyperscalers, with sustained demand from clients like Google driving AI outperformance.
**Unupdated Guidance May Spark Correction** During the earnings call, Broadcom confirmed AI revenue acceleration from 2025's 65% growth to ~100% in Q1 but provided no formal 2026 AI growth update. Schneider expects stock pressure despite beat-and-raise quarterly results, as the market priced in higher guidance.
Goldman’s proprietary model projects Broadcom’s 2026 AI revenue growth will far exceed 100%, suggesting management’s conservatism underestimates actual momentum. The bank’s conviction in Broadcom’s AI outperformance is growing.
**Client Expansion: Anthropic’s $11B Order & New Wins** Beyond guidance, Broadcom made tangible client progress. It maintained strong traction with top client Google on TPUs and revealed a fifth XPU customer (non-OpenAI) to generate early 2026 revenue. Notably, fourth-largest XPU client Anthropic placed an additional $11 billion order for 2026.
Backlog underscores demand: AI orders for the next 18 months hit $73 billion and are expanding. Beyond Google, Apple and Cohere have adopted Broadcom’s TPU tech, though two existing clients remain focused on in-house chips.
**Financial Outperformance & Margin Trends** Broadcom exceeded Goldman and consensus estimates across key metrics: Q4 AI semiconductor revenue ($6.5B vs. $6.2B expected), total semiconductor solutions ($11.1B vs. $10.7B), and infrastructure software ($6.9B). Gross margin reached 77.9%, slightly above expectations, with Q1 2026 adjusted EBITDA margin guidance at 67%.
Goldman notes potential margin dilution in H2 2026 as full-rack solutions for Anthropic (and potentially OpenAI) ship—these contain higher passthrough component costs. However, absolute dollar profitability should remain strong, with operating leverage and cost optimizations mitigating impacts.
**Valuation & Risks** Goldman maintains a 38x P/E multiple but raises normalized EPS to $12.00 (from $11.50), deriving the $450 target. Shares fell 4.47% to $406 after-hours.
The bank reiterated Broadcom’s custom chip supremacy enables cost-effective inference solutions for hyperscalers and model builders—a core investment thesis. Key risks include: slowing AI infrastructure spend, market share loss in custom compute, lingering non-AI inventory digestion, and VMware’s intensifying competition.
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