Broadcom (NASDAQ: AVGO) started 2026 strongly, with shares climbing to a 52-week high of $495 in the first half of the year.
Since reaching that peak, the semiconductor giant’s stock has dropped 27%, leaving it up just 4% year to date.
That modest gain compares poorly to the S&P 500’s 11% return over the same period, but analysts argue the market is underestimating Broadcom’s true prospects.
The company’s fiscal third-quarter results, covering the period ended August 2, 2026, showed revenue surging 86% year over year to $29.6 billion.
Adjusted operating income climbed 92% year over year to $20.1 billion, while adjusted earnings per share came in at $3.32, up 96% from the prior-year period.
Free cash flow at the end of the quarter reached $13.7 billion, representing a 95% year-over-year increase, signaling strong financial discipline across the business.
Broadcom’s AI chip segment was the clear standout, generating $16.7 billion in revenue, a staggering 221% increase year over year.
Despite this performance, shares fell after earnings because Broadcom’s fourth-quarter revenue guidance of $34.8 billion came in slightly below Wall Street’s projections.
Broadcom’s blistering growth had already been priced into the stock, meaning any shortfall against elevated expectations was always likely to trigger a selloff.
However, long-term investors are increasingly focused on Broadcom’s positioning in the fast-growing custom AI chip market rather than near-term guidance misses.
Custom chips offer hyperscalers and other large technology companies a way to diversify away from Nvidia (NASDAQ: NVDA), which remains the undisputed leader in the GPU market.
These custom chips also tend to be cheaper than Nvidia’s GPUs, helping major technology companies manage the enormous costs associated with scaling AI infrastructure.
Broadcom has already secured long-term supply agreements with companies including Meta Platforms (NASDAQ: META) and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), two of the largest AI spenders in the world.
Alphabet has also begun selling AI chips to select customers, and a successful expansion of that business could deepen its existing partnership with Broadcom further.
Broadcom’s management is forecasting AI semiconductor revenue of approximately $115 billion in fiscal year 2027, which would exceed the company’s current trailing 12-month revenue of $89.1 billion.
Critically, management has indicated that demand for Broadcom’s AI chips currently exceeds available supply, providing a strong foundation for its forward guidance.
On valuation, Broadcom trades at 19.3x forward earnings, compared to an average of 20.2x for information technology stocks more broadly, suggesting the stock is modestly discounted relative to its sector peers.
Given the company’s financial performance, the sustained demand environment, and a valuation below the sector average, Broadcom presents a compelling case for investors willing to look beyond short-term noise.
