Broadcom’s (NASDAQ: AVGO) custom chips could emerge as a game changer for the chipmaker as data centers need them to operate artificial intelligence models.
Broadcom’s revenue has jumped due to the higher sales of its AI chips, said Broadcom Chief Executive Hock Tan.
The increase in the use of AI chips is due to the rise in data center construction and more industries adopting AI to make their businesses more efficient. The company estimates that AI revenue will jump to $8.2 billion for its first quarter, a large increase from the consensus forecast of $6.9 billion.
Revenue during the fiscal fourth quarter reached $18.02 billion for the quarter, setting a record, and $63.9 billion for the full fiscal year. Both revenue figures beat estimates from analysts, who had predicted revenue of $17.5 billion for the quarter and $63.3 billion for the year.
Broadcom differentiates itself from its rivals by creating AI accelerator chips to meet companies’ specifications, such as Meta (NASDAQ: META), OpenAI, and Alphabet’s Google (NASDAQ: GOOGL) Tensor Processing Units (TPU). The chip manufacturer also produces storage and memory chips, and networking.
The company generated a profit of $8.518 billion in the fiscal fourth quarter, compared with $4.3 billion a year earlier.
AI chips to generate record revenue
Experts believe that Broadcom will reap the rewards of manufacturing its custom AI chips even within the next few years. These AI chips could produce 25% to 30% of the entire accelerated computing market, according to Futurum Group, compared to merely a fraction currently.
Other industry executives said the entire market for making AI chips could increase to $1 trillion a year in the next few years. Broadcom itself could grab 70% to 80% of that custom chip market, said Daniel Newman, Futurum’s CEO, according to the Wall Street Journal.
The future growth in the tech sector lies with semiconductors, not software, he added.
“Broadcom has really just mastered the class of custom silicon for AI,” Newman said. “This market is only going to get bigger, and all these AI companies are only going to need more chips.”
The market for these more expensive custom chips will generate a $30 billion-a-year market, rising at a compound annual growth rate of between 40% and 45%, according to investment bank J.P. Morgan.
Harlan Sur, an analyst for J.P. Morgan, has a price target of $475 for the stock. The investment bank chose Broadcom as the top stock in the semiconductor sector for 2026.
“We believe Broadcom (#1 market share leader) and Marvell (#2 market share leader) will be the biggest beneficiaries of this resurgence in custom chip design,” Sur wrote.
Broadcom’s revenue could rise exponentially from these custom chips along with its networking business and could reach between $55 billion to $60 billion in fiscal year 2026, increasing to over $100 billion in fiscal 2027, according to Sur. That level is an increase from $20 billion in fiscal 2025.
The company’s customers, such as Google, are what differentiate it from its rivals.
Broadcom’s AI chip business is “accelerating, and we project even greater astronomic growth over the next two years,” wrote William Kerwin, a senior equity analyst for Morningstar, who has a price target of $480 per share. “We see phenomenal demand for Google’s TPU chip, layering in of new customers, and big incremental orders from existing customers driving immense demand.”
The company also received a new $11 billion AI chip order from Anthropic for the second half of 2026 and a new custom AI chip customer that was not named in 2026.
Since Google is Broadcom’s lead AI customer and the “latest generation of its TPU chip exhibits superb performance that is driving significant orders,” he wrote. “The TPU is no longer exclusively internal to Google—we now expect significant orders from Anthropic and Meta for these chips and systems.”
Since Anthropic will “accrue revenue in the second half of fiscal 2026, with $21 billion in wholly incremental orders,” Broadcom can also add its new customers’ $1 billion in incremental revenue in fiscal 2026, Kerwin added.
In addition to its current five customers, Broadcom can add OpenAI to its roster in 2027, he wrote.
OpenAI’s deal with Broadcom will produce revenue of up to $25 billion per gigawatt for Broadcom, Sur wrote.
“We remain of the view that it is still early innings for this AI infrastructure investment cycle, with trillions of dollars of additional investment in the cards for the next several years,” he wrote.
Shares of the company fell over 12% during the past five days as Wall Street is concerned about the future outlook of the company, including its revenue estimate, contracts backlog, and future margins.
The recent pullback is due to “commentary on gross margin dilution from AI chips,” Kerwin said. “We aren’t concerned with this, given that these chips are operating-margin-accretive. The firm’s AI backlog might’ve missed investor targets too, but we see upside to this and view it highly positively.”
Broadcom will likely emerge as a winner in the AI business, as its chips are highly sought after and will attract even more customers in the future.
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