Broadcom FY26: Tollroad for AI giants

Source: Bloomberg Finance, iFAST Compilation, Data as of 20 Jan 2026

Furthermore, while the $73 billion AI backlog provides visibility, it also highlights elevated customer concentration risk. The reliance on a handful of hyperscalers—primarily Google (Alphabet), Meta, and now Anthropic—leaves Broadcom vulnerable to the internal roadmap changes of its clients. The long-feared displacement by in-house silicon is no longer theoretical: Apple’s shift to its proprietary "N1" Wi-Fi chip in the iPhone 17 lineup illustrates the in-housing risk in mature sockets.

We view Broadcom as a core holding for long-term technology exposure, but we advise caution in the short term.  We recommend investors look for entry points during periods of volatility rather than chasing the stock at current levels. Alternatively, broader semiconductor exposure (e.g. SMH) may offer a more diversified risk profile. 

Figure 1: Broadcom 2025 performance 

Read more: Are We in an AI Bubble?

Introduction of Broadcom 

Broadcom Inc. stands as one of the most operationally efficient companies in the technology sector. CEO Hock Tan has built an empire through disciplined acquisitions (VMware, Symantec, CA Technologies) and rigorous cost discipline. Today, Broadcom is effectively the "plumbing" of the digital economy, providing the critical networking silicon and custom compute engines that power the AI revolution.

However, the narrative is becoming more complex. The company’s fortunes are increasingly tied to the volatile capex cycles of a few hyperscale giants. The "AI Gold Rush" is in full swing, but investors are beginning to ask tough questions about the return on investment (ROI) for these massive infrastructure builds.

Company Overview

Broadcom operates through two primary segments: Semiconductor Solutions and Infrastructure Software. 

Table 2: Business segments of Broadcom 

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 21 Jan 2026.

Semiconductor Solutions: Growth with Margin Pressure

This segment generated $36.9 billion in FY2025 (+22% YoY), driven almost entirely by AI demand.

- Networking: Broadcom is a dominant player in data-centre switching with Tomahawk and Jericho chips. The Tomahawk 6 (102.4 Tbps) is the current industry standard for AI clusters, but competition from Nvidia’s Spectrum-X Ethernet platform is intensifying.

- Custom Silicon (ASICs): The fastest-growing unit, but increasingly comes bundled with lower-margin system-level delivery. Broadcom co-designs chips for Google (TPU), Meta (MTIA), and ByteDance. The addition of Anthropic and OpenAI as customers confirms Broadcom’s leadership, but these deals often involve selling full rack systems (compute + networking + cooling), which carry lower gross margins than selling standalone chips.   

- Wireless: Historically a cash cow, this division faces a structural decline. Apple, Broadcom's largest customer, has begun replacing Broadcom’s Wi-Fi/Bluetooth chips with its own N1 silicon starting with the iPhone 17. While Broadcom retains the FBAR filter business, the wireless segment is expected to be a drag on growth in FY2026/27.

Infrastructure Software: The VMware Transformation

Revenue for this segment reached $27.0 billion in FY2025 (+26% YoY), fueled by the full-year contribution of VMware.

Broadcom is aggressively transitioning VMware customers from perpetual licenses to subscription-based VMware Cloud Foundation (VCF) bundles.

This transition has led to significant price increases for some customers, creating friction and raising the risk of churn among small and mid-sized enterprises. While switching costs remain high for large clients, the pricing reset may limit incremental market expansion over time.

Industry Overview

The semiconductor landscape is bifurcating between general-purpose computing (dominated by Nvidia GPUs) and specialised computing (ASICs). Broadcom is the leader of the ASIC camp, but the market dynamics are shifting rapidly.

The Inference Shift and Cost Sensitivity

As AI models move from training to inference (running the models), cost becomes the primary driver. Hyperscalers cannot afford to deploy millions of expensive Nvidia H100/Blackwell GPUs for inference.

This favors Broadcom’s custom silicon, like Google’s TPU v7 ("Ironwood"), which offers better power efficiency and lower Total Cost of Ownership (TCO) for specific workloads.

Nevertheless, the market expectation for how quickly this shift monetizes may be too optimistic. Inference revenue is volume-based, and if consumer adoption of AI tools slows, the massive capex spend by hyperscalers could pause, leaving Broadcom with an air pocket in its order book.

The Connectivity Battle: Ethernet vs. InfiniBand

Investment Thesis: Balancing Growth with Structural Risks

Assign ‘Hold, with a Target Price of $390

Source: Bloomberg Finance, iFAST Compilation, Data as of 5 Feb 2026

Table 4: Forecasted revenue growth 

Source: Bloomberg Finance, iFAST Compilation, Data as of 5 Feb 2026

Key Takeaway

Broadcom remains critical enabler of AI infrastructure with strong cash generation and multi-year demand visibility. Its ability to secure multi-billion dollar commitments from Anthropic, OpenAI, and Google speaks to the superiority of its technology. 

However, expectations have risen to levels that assume AI growth will be linear and margin-accretive.

Our analysis suggests a bumpier path: margins dilution from hardware mix, gradual erosion in legacy wireless sockets, and elevated customer concentration risk.

We view Broadcom as a "Compounder" rather than a "high-beta AI momentum trade". 

We initiate with a HOLD rating and we recommend investors wait for better entry points during volatility rather than chasing at current levels. Alternatively, a broader semiconductor exposure such as SMH may be more appropriate for investors seeking a diversified AI beta.