Is Broadcom Stock Too Dependent On One Business?

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Broadcom (AVGO) holders may worry the company is becoming an AI chip business, and one number shows why. AI chips made up 56% of Broadcom’s revenue in fiscal Q3 2026, up from 49% in fiscal Q2. Most of that revenue comes from custom chips Broadcom builds for customers such as Google, Meta and OpenAI. What is pushing that share up, and how far does management expect it to go?

What Is Pushing Broadcom’s AI Share Higher?

Broadcom’s AI sales are growing far faster than everything else it sells. AI chip revenue reached $16.7 billion in fiscal Q3 2026, up 221% from a year earlier. Custom chip shipments were more than 3.5 times their level a year earlier. On its September 2 call, management said demand in the quarter was hot.

The rest of Broadcom grew at a much slower pace. Revenue from infrastructure software was $8.8 billion, up 29% from a year earlier, while sales of its other chips rose just 5%.

Management expects the AI share to climb again. It guided fiscal Q4 2026 revenue to $34.8 billion, with $21.7 billion of it coming from AI chips. That would put AI at about 62% of sales, though it is a forecast, not a result.

What Broadcom Gives Up For Its AI Growth

The first cost shows up in margins. On management’s adjusted measure, gross margin was 75% in fiscal Q3 2026, down 210 basis points from the quarter before. Management said this was because AI chips made up more of the mix. It expects about 73% in fiscal Q4 2026, against 78% in fiscal Q4 2025, because of the growing amount of memory in its custom chips. Operating profit is still growing faster than sales, however. Management said operating income rose 92% from a year earlier.

The bigger unknown is who buys the chips. Management expects Anthropic to become its largest custom chip customer in 2027, and sees OpenAI becoming its second largest in 2028. Broadcom set up a financing platform with Apollo and Blackstone for compute built for OpenAI and Anthropic, closing its first $35 billion tranche in June for Anthropic. While external partners fund the vehicle, Broadcom disclosed contingent residual value guarantees—which management considers low risk—capping maximum backstop exposure for the first tranche at approximately $29 billion. Management said it had nothing new to add and that this figure remains true.

Demand is the evidence on the other side. Management said its demand for fiscal 2027 exceeds the AI revenue it has secured supply for. Broadcom recently signed a long-term agreement with Google to develop and supply future generations of TPUs and AI networking.

How Far Has Broadcom Stock Fallen Before?

Broadcom stock lost 21.0% from April 27 to October 26, 2026, including dividends, while the S&P 500 gained 7.6%. Even after that fall, the shares trade at 41.0 times earnings, against 22.9 for the S&P 500. The price likely still assumes much of the AI growth management has guided for.

When markets turn, Broadcom has usually fallen further than the index. In the 2025 tariff shock, the stock fell 36%, against 19% for the S&P 500. During the 2022 inflation shock and Fed tightening, it fell 34%, against 24%. The 2023 regional banking crisis was the exception, when Broadcom fell less than the index.

How worried should a holder be? Moderately. AI chips now bring in more than half of Broadcom’s revenue. Management says it has secured the supply for its fiscal 2027 AI outlook, but more of those sales now come from a few AI customers. Broadcom may stand behind some of their financing with guarantees it calls low risk. For the risk to be worth taking, Broadcom’s AI customers need to keep taking chips on the schedule management set out. Broadcom’s AI revenue, against the $21.7 billion guide, is the number to watch when it reports fiscal Q4 2026, expected in December 2026.

How To Act On AVGO?

Not necessarily on Broadcom alone, if your goal is long-term wealth. Wealth is built by owning the companies that keep outperforming, the leaders of their industries, wherever they are. Broadcom is one. Over the five years to October 2026, its stock rose 574%, ahead of 51 of the 54 other companies in Semiconductors, where the typical company rose 27%.

Finding companies like these takes comparison across industries and sectors, and that is what the Trefis High Quality (HQ) Portfolio does. It holds 30 quality companies in equal weight and, since its inception in September 2020, has returned more than 105%, ahead of a benchmark that combines the S&P 500, S&P Mid-cap and Russell 2000. See how we find the leaders.

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