What Are AVGO Stock Investors Betting On?
Broadcom (AVGO) stock currently trades at 39.5 times its earnings over the past twelve months, a multiple based on adjusted earnings with stock-based pay added back. Paying such a steep price for a single year of profit can look aggressive at first glance. However, the valuation shifts significantly when measured against the profit projected through fiscal 2027. So how much growth are you paying for when you buy Broadcom today?
What Do Broadcom Investors Need The Forecast To Deliver?
The consensus forecast projects Broadcom’s sales rising 64.5% in a single year, climbing from fiscal 2026 to fiscal 2027. That represents the core growth investors are buying into at current prices. Expected profit rises 65.0% in the forecast, tracking almost exactly in line with sales. These two metrics move together because margins stay steady: Broadcom is expected to keep 54% of its sales as net profit in fiscal 2026 and 55% in fiscal 2027.
Under these estimates, Broadcom stock trades at 30.9 times the forecast earnings for fiscal 2026, a year that ends on November 1, 2026. The multiple then drops to 18.7 times the forecast earnings for fiscal 2027. By comparison, the stock trades at 39.5 times on trailing earnings.
What Broadcom Has Delivered And Guided So Far
Looking backward, Broadcom’s sales grew 48.7% over the past twelve months. While that trails the forecast for fiscal 2027, growth accelerated in the company’s latest quarter. Revenue reached $29.6 billion in fiscal Q3 2026, up 86% from a year earlier. Management followed up by guiding for fiscal Q4 2026 revenue of $34.8 billion, a figure that would be up 93% from a year earlier.
This top-line momentum is driven by AI chips, which accounted for 56% of revenue in fiscal Q3 2026. Broadcom’s custom AI chip customers include OpenAI and Meta. Management expects AI revenue of $58 billion in fiscal 2026. During the fiscal Q3 2026 call, executives noted the company has secured the supply needed to double that to about $115 billion in 2027.
Broadcom’s Quarterly Gross Margin Slips As AI Chips Grow
Margins are where the consensus forecast is most likely to fall short. Broadcom kept 52% of its sales as net profit in fiscal 2025, its last reported year. The forecast for fiscal 2026 and fiscal 2027 models a net profit margin above that mark. At the same time, the company’s gross margin, which measures what is left after the cost of making the chips, is trending down. Gross margin was 75% in fiscal Q3 2026. That came in above the 74% management had guided for that quarter, yet management then guided for a lower rate of about 73% for fiscal Q4 2026. Executives explained that AI chips now carry more memory, a dynamic that is diluting gross margin as those products become a larger share of overall sales. If Broadcom’s net profit margin falls in tandem, actual profit could arrive below the forecast even if sales stay on track.
Sales could also arrive later than forecast. Broadcom’s customers need land, power and buildings for their data centers. Management flagged this infrastructure bottleneck as a big concern on the fiscal Q3 2026 call. A data center that opens late would push associated chip sales out of fiscal 2027. One specific customer’s timing matters more than the others. Management noted that a single customer is on track to become Broadcom’s largest custom chip customer in 2027. Broadcom has also agreed to provide up to $42 billion in financing through a multi-year facility to support the customer’s infrastructure and chip deployments, according to an IPO filing cited by Reuters.
If the overall forecast holds, the valuation on fiscal 2027 profit offers a fair picture of what you pay for Broadcom today. However, the forecast is most likely to fall short on margins, and such a miss would mean investors are currently paying for profit that may never materialize. When Broadcom reports fiscal Q4 2026, a gross margin below what management guided would show AI chips diluting its gross margin faster than management expected.
How To Act On AVGO?
Now you know AVGO better. And that’s our purpose: to make you informed before you invest your money. However, making a bet on a single stock carries its own risks.
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