Chip designer Broadcom (AVGO +4.69%) has clocked sizzling returns in the past year, turning an investment of $1,000 into more than $2,400 as of this writing. The stock's remarkable jump of 144% during this period has significantly outpaced the 27% gains clocked by the PHLX Semiconductor Sector index in the past year.
Broadcom stock received another boost after releasing its fiscal 2025 third-quarter results (for the three months ended Aug. 3) on Sept. 4. Shares of the company jumped more than 9% the following day as it became clear that the chip giant is on track to win big from the proliferation of artificial intelligence (AI) in the long run.
But is Broadcom's AI opportunity big enough to help it deliver substantial gains to investors over the next year? Let's find out.
Image source: Getty Images.
AI is moving the needle in a big way for Broadcom
Broadcom reported a 22% year-over-year increase in its revenue last quarter to $16 billion, while adjusted earnings shot up by 36% to $1.69 per share. The numbers exceeded consensus expectations. The robust demand for AI chips played a central role in boosting Broadcom's revenue and earnings last quarter.
Its revenue from sales of its custom AI processors increased 63% year over year to $5.2 billion, which means that it is getting a third of its top line from this niche now. Even better, Broadcom is anticipating its AI revenue to grow to $6.2 billion in the current quarter. That would bring its fiscal 2025 AI revenue to almost $20 billion, a potential improvement of 64% from last year.
The good part is that Broadcom's AI revenue could grow at a breathtaking pace in the coming year. The company ended the quarter with a record $110 billion worth of bookings, driven by "robust demand from AI," according to CEO Hock Tan.
To put things in perspective, Broadcom expects to end the current fiscal year with $63.3 billion in revenue. So, the size of its bookings seems solid enough to allow Broadcom to keep up its healthy growth levels in the next year.
NASDAQ: AVGO
Key Data Points
Another important development that investors should note is that Broadcom has secured production orders for custom AI processors from a fourth customer. The company was already designing custom chips for three hyperscale customers and was engaged in discussions with another four potential customers. One of those potential customers -- said to be OpenAI -- placed orders worth more than $10 billion for Broadcom's custom AI chips last quarter.
With the new customer on board, the company now expects its "fiscal 2026 AI revenue to improve significantly from what we had indicated last quarter." The company was earlier expecting a 60% spike in AI revenue in the next fiscal year, but analysts are now forecasting that figure to double. It won't be surprising to see Broadcom actually living up to that forecast, since it has the potential to bring more customers on board.
Moreover, OpenAI could move the needle in a big way for Broadcom in the coming year. The ChatGPT maker is expected to burn a whopping $115 billion in cash through 2029 as it scales up its AI infrastructure. Its cash burn is expected to double in 2026, and don't be surprised to see Broadcom gaining from this higher spending.
So, it is easy to see why Broadcom's growth estimate for fiscal 2026 has been hiked substantially.
AVGO Revenue Estimates for Current Fiscal Year data by YCharts.
Here's how much upside investors can expect
Broadcom's revenue is expected to jump by 31% in the next fiscal year (which will end in November 2026), as per the chart above, to $83.5 billion. There is a chance that it may be able to exceed that mark if it can win more business from the three customers that it currently has in its pipeline, as well as an increase in spending by its existing customers.
Importantly, Broadcom's earnings are also expected to jump by 35% in the next fiscal year to $9.11 per share. Even that estimate has moved up significantly following its latest quarterly report.
AVGO EPS Estimates for Current Fiscal Year data by YCharts.
If Broadcom can hit that mark in the coming year and trades at 48 times earnings (in line with the average price-to-earnings ratio of the U.S. technology sector), its stock price could jump to $437. That would be a 30% jump from current levels.
So, this AI stock has the potential to jump higher even if it trades at a significant discount to its trailing earnings multiple of 86. The possibility of more upside is also there, as the market could reward Broadcom's accelerating growth with a premium valuation.
