Macquarie upgraded Broadcom (NASDAQ: AVGO) from ‘Neutral’ to ‘Outperform’ and raised its price target to $490 on September 2, citing reduced concerns over insourcing risk and strong growth prospects in the semiconductor business.
Broadcom’s third-quarter fiscal 2026 revenue rose 33% sequentially to $29.6 billion, in line with Macquarie’s estimate, but gross profit margin declined 2 percentage points as lower-margin semiconductor revenue grew faster than higher-margin software.
Despite the quarterly decline, Broadcom continues to generate an impressive 76.28% gross profit margin over the past 12 months, with net profit exceeding Macquarie’s estimates by 4%.
“Broadcom achieved record revenue, operating profit and free cash flow in Q3. We delivered non-GAAP operating income growth of 92% year-over-year, as consolidated revenue grew 86% year-over-year to $29.6 billion,” said Amie Thuener, CFO of Broadcom.
Moreover, Macquarie believes concerns surrounding Google (NASDAQ: GOOGL) efforts to insource its tensor processing units (TPUs) and diversify sourcing through MediaTek are now largely reflected in Broadcom’s share price.
Overall, Macquarie concluded that Broadcom’s growth is becoming more evenly distributed across six XPU customers, as management expects one customer to become its second-largest XPU customer by fiscal 2028.
KeyBanc reiterates its Broadcom stock price target
On the same day, KeyBanc reiterated its ‘Overweight’ rating on the chipmaker and maintained its $575 AVGO stock price target.
The reaffirmation comes after Broadcom reported strong fiscal third-quarter results and raised its artificial-intelligence (AI) revenue outlook. Now, the company expects AI revenue of approximately $115 billion in fiscal 2027, up from more than $100 billion previously, and expects that figure to double to about $230 billion in fiscal 2028.
Analyst John Vinh said higher AI expectations and increasing customer diversification support its positive view, with Anthropic and OpenAI expected to be the largest customers in fiscal 2028.
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