UBS Keeps Buy on Broadcom, $470 Price Target

UBS analyst Timothy Arcuri reiterated a Buy rating and $470 price target on Broadcom Limited (NASDAQ: AVGO).

“We hosted a virtual NDR call with the CEO/CFO – we came away feeling that the company established a strong upward bias to F2027/F2028 AI revenue guidance provided on its recent earnings call and again reiterated that investor concerns on its flagship TPU program are misguided.

Key takes are: 1) following the v8i ramp in 2027, engagement remains very strong for the next two generations of its flagship XPU program as AVGO brings new and unique technologies and innovations to the table that are comparable to what NVDA can do and far superior to other peers; 2) AVGO is now including significantly more SRAM and ARM CPU cores for orchestration/management (potentially sweeping in content that is currently standalone server CPU for rack head- nodes), making these increasingly complex XPU devices harder for any in-house design team to compete with both in terms of AVGO’s capabilities and design velocity; 3) regarding its initial frontier lab customer (buying TPUs), AVGO stressed that it “sells chips, not financial products” and is not providing direct financing, but rather contributing to a platform for the customer to leverage third-party lenders, with AVGO providing residual-value guarantees only for select tranches that management characterized as a small fraction of the overall financing; 4) AVGO framed total rack- level compute spend closer to $40B/GW for NVDA and ~$20-30B/GW for ASICs (of which AVGO captures a large piece), highlighting that its XPU+networking portfolio addresses a meaningful portion of the spend, but not its entirety – over time it expects networking to be biased higher versus the current ~30% of its AI revenue; and 5) more broadly, AVGO viewed any near-term constraints on powered shell as not a concern as it expects the handful of frontier AI customers to continue ramping custom compute efforts that are more integrated and increasingly tailored to individual workloads.

Net, we think AVGO’s commentary is consistent with what we have heard in the past and continue to believe that investors underappreciate the difficulty for other ASIC competitors to keep up on mainstream XPUs given AVGO’s vertically integrated packaging and substrate capabilities and industry-leading 448G SerDes that allows it to do what others cannot from a design perspective.

We reiterate our Buy rating and maintain our estimates/PT at $470, based on ~17x EV/FCF applied to CY27E Software FCF contribution of $31.2B and ~30x EV/FCF applied to CY27E Semis FCF contribution of $60.4B.”

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