Broadcom 1Q26: Better earnings, flatter share price

Since our last update on February 5, 2026, the company delivered a strong 1Q 2026 earnings beat, reporting record revenue of $19.31 billion and a 106% surge in AI-related sales to $8.4 billion. Management’s revised guidance is even more aggressive, projecting 2Q revenue of $22 billion, implying 47% y/y growth and signalling potential AI chip revenue exceeding $100 billion by 2027. This trajectory is bolstered by high-volume custom silicon wins with OpenAI and Anthropic, alongside the continued dominance of its Tomahawk 6 switching platform.

Although the newly authorised $10 billion share repurchase program and a robust 68% adjusted EBITDA margin provides a solid fundamental floor, the risk-reward profile appears stretched at current levels. We remain bullish on the operational moat but recommend patience for a more attractive entry point as the market digests current valuation multiples.

As such, we maintain our Neutral call with a target price of $400 (vs $330 as of the time of writing).

Figure 1: Broadcom share price and our previous call

Stellar Q1 26 results driven by AI semiconductor

Table 1: Broadcom’s Q1 26 results

Metric / Segment	Q1 26 Actual	Y/Y Change	Q/Q Change
Total Net Revenue	$19.31 Billion	29.50%	7.20%
- Semiconductor Solutions	$12.52 Billion	52.40%	3.50%
- Infrastructure Software	$6.80 Billion	1.40%	14.90%
Gross Margin	77.00%	+160 bps	Flat
Adjusted EBITDA	$13.13 Billion	30.20%	7.50%
Net Income (Non-GAAP)	$10.19 Billion	30.20%	8.10%
Diluted EPS (Non-GAAP)	$2.05	28.10%	5.10%
Free Cash Flow	$8.01 Billion	33.20%	-2.60%

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 9 Mar 2026.

Broadcom’s fiscal first-quarter results demonstrate the company’s ability to scale rapidly while maintaining strong profitability. Consolidated revenue reached a record of $19.3 billion, representing 29% y/y growth and comfortably exceeding consensus expectations.

The primary driver of this growth was the company’s AI semiconductor segment, where revenue surged 106% y/y to $8.4 billion. This also marked the twelfth consecutive quarter of sequential expansion in AI revenue growth. As a result, Broadcom’s Semiconductor Solutions segment generated $12.5 billion, a 52% y/y increase.

Crucially, the company continues to convert this revenue expansion into meaningful operating leverage. Broadcom reported adjusted EBITDA of $13.1 billion, equivalent to 68% of total revenue, while non-GAAP operating margin expanded 50 bps y/y to 66.4%. Free cash flow reached $8 billion, 41% of revenue, underscoring the company’s strong cash-generating capabilities.

Its proprietary intellectual property and close collaboration with hyperscale customers allow it to capture attractive margins .

Mixed Performance across semiconductor segments

While AI-related demand continues to accelerate, other semiconductors segments remain relatively subdued. In particular, the company’s non-AI semiconductor revenue remained broadly flat y/y at approximately $4.1 billion, primarily due to seasonal weakness in the wireless segment.

This reflects broader macroeconomic softness affecting consumer electronics and certain enterprise IT markets. While there are early signs of stabilisation, these segments have yet to experience a meaningful cyclical recovery.

From working capital perspective, days of inventory on hand (DIO) increased to 40.3 days in Q1, compared with 35.6 days in previous quarter. In a typical semiconductor cycle, rising inventory levels might signal a weakening demand. However, in Broadcom’s case, the build likely reflects preparation for upcoming AI infrastructure deployments, including custom silicon and rack-level system deliveries, a similar pattern observed in its closest peer – Nvidia.

Nevertheless, managing inventory efficiently while legacy segment will be a crucial operational metric worth monitoring in the coming quarters.

Strong Q2 Guidance signals continued momentum

Table 2: Broadcom’s Q2 26 guidance

Metric	Q2 26 Guidance (USD)	Change
Total Revenue	$22.0 Billion	+47% y/y
Adjusted EBITDA	68% of Revenue	Consistent with Q1 Margin
AI Semiconductor Revenue	$10.7 Billion	+140% y/y
Semiconductor Solutions	$14.8 Billion	+76% y/y
Infrastructure Software	$7.2 Billion	+9% y/y

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 9 Mar 2026.

Looking ahead, Broadcom’s guidance for the second quarter suggests continued momentum. Management expects revenue of approximately $22 billion, implying 47% y/y growth.

The AI semiconductor division is expected to remain the primary growth driver, with AI revenue projected to reach $10.7 billion, representing 140% y/y growth. This guidance significantly exceeds the previous consensus estimate of $9.3 billion, indicating stronger-than-expected demand across both AI ASICs and Ethernet-based networking products.

Despite the rapid ramp-up in production, management expects adjusted EBITDA margins to remain around 68%, indicating that profitability should remain resilient even as deployments scale. The combination of strong top-line growth and stable margins supports continued earnings expansion and reduces near-term concerns regarding margin dilution.

Expanding backlog provides long-term visibility

One of the most notable aspects of Broadcom’s outlook is its growing order backlog. The company reported a $73 billion six-quarter AI backlog, largely supported by multi-year commitments from hyperscalers and leading AI developers.

The backlog reflects increasing demand for custom AI silicon, including TPU (Tensor Processing Units), as well as networking components required to support large-scale data centre clusters.

Recent developments include a reported $11billion additional order from Anthropic for delivery in late 2026, following ~$10billion of TPU rack commitments secured in the previous quarter. Broadcom has also added a fifth major XPU customer, while industry commentary suggests growing engagement with organisations such as OpenAI.

As hyperscalers pursue greater diversification within their supply chains to reduce overreliance on GPU and optimise cost, Broadcom’s custom silicon capabilities position it as a preferred partner.

AI Infrastructure spending appears structural

During the earnings call, management indicated that the company has line of sight for AI chip revenue to exceed $100 billion by 2027. (~400% to FY25). Importantly, this figure refers solely to silicon revenue and excludes additional system integration and rack-level deployments, implying a significantly larger total addressable market.

To support expected demand, Broadcom has already secured supply chain capacity, including foundry nodes and advanced packaging through 2028, as management cited in the call. Such long-term supply agreements typically require substantial non-cancellable commitments from customers, reinforcing the view that hyperscaler investment AI infrastructure likely remains elevated for several years, despite expectations of slower growth beyond 2027.

Figure 3: AI revenue from semiconductor solutions since FY24 and forecast in FY27

Networking leadership strengthens competitive position

Beyond AI accelerators, networking infrastructure represents another key area of growth. As AI clusters scale to tens of thousands of processors, networking bandwidth becomes increasingly critical.

Broadcom’s Ethernet-based networking solutions grew approximately 60% y/y in Q1, accounting for ~33% of total AI revenue. Management expects this contribution to rise to ~40% in Q2.

The company’s latest Tomahawk 6 switch silicon, capable of 100 tbps (terabits per second) bandwidth, is expected to further strengthen its leadership in high-performance data centre networking.

Broadcom is also increasingly delivering system-level rack solutions, bundling AI accelerators with PCIe fabrics, switching infrastructure and advanced 200G/400g SerDes interfaces. This integrated approach increases the company’s revenue per deployment while strengthening its strategic importance within hyperscale data centre architectures.

Infrastructure software provides earnings stability

Alongside semiconductor growth, Broadcom's infrastructure software segment continues to provide stable, high margin revenue.

In Q1, software revenue reached $6.8 billion, 1.4% y/y growth. However, within this segment the VMware business grew 13% y/y as customers transitioned toward VMware Cloud Foundation (VCF) subscription deployments.

For Q2, management expects software revenue to increase to approximately $7.2 billion, representing 9% y/y growth.

While operating margins at ~78%, the software business serves as a strong cash-generation engine and helps offset potential margin pressure from hardware mix shifts associated with system-level AI deployments.

We expect a stabilised contribution from this segment ahead, barring any possibilities of aggressive expansion or M&A, which could tilt towards upside contribution.

Figure 4: VMWare contribution to revenue and forecast in FY27

TP at $400, Maintain Neutral

Table 3: Broadcom’s valuation

	FY25	FY26	FY27
EPS	6.8	10.9	14.2
y/y growth		60.29%	30.28%
Forward PE	48.5	30.3	23.2
Current share price	330
Fair PE	28
Upside Potential			21%

Source: Bloomberg Finance L.P, iFAST Compilation, Data as of 9 Mar 2026.

Overall, Broadcom’s Q1 26 results reinforce the company’s strategic positioning at the centre of the global AI infrastructure build-out. Strong demand for custom silicon and networking solutions, combined with long-term supply commitments and a growing order backlog, suggests that AI-related CAPEX may remain elevated for longer than expected.

As a result, we have upwardly revised the previous FY27 EPS figure based on the strong visibility of revenue backlog, while incorporating certain geographical risk and CPO development as discount factor.

Nonetheless, similarly to the top fabless peers, we do see a crowded valuations within the segment. 

We have downwardly adjusted the fair PE to 28x (from 30x in our previous report) given our assumption of the current hype cycle of fabless semiconductor players is somewhere around the middle of peak of inflated expectations and trough of disillusionment.

Overall, we acknowledge the huge upside from AI-driven secular growth. Yet investors should treat it as a high-beta stock, the price for perfection multiple makes it highly sensitive to broader market volatility and macro shifts, suggesting that while long term story is robust, the current entry point might lack a sufficient margin of safety.

Figure 5: Gartner Hype Cycle

Source: Gartner, iFAST Compilation, Data as of 9 Mar 2026.

Key Summary

With its combination of high-growth semiconductor exposure and highly profitable infrastructure software assets, Broadcom appears well positioned to capture value from the next phase of the AI investment cycle.

At the same time, the elevated expectation for fabless players to consistently beat the already-high consensus is a source of potential volatility, alongside ongoing customer concentration risk.

While we calculate a 21% upside potential to our $400 target price driven by robust AI-related secular growth, we maintain a Neutral rating because Broadcom’s 'price for perfection' multiple and high-beta profile make it highly sensitive to macro shifts and broader market volatility, suggesting the current entry point lacks a sufficient margin of safety