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Broadcom forecasts that its AI semiconductor business will grow to $115 billion in fiscal 2027, then double to $ 230 billion in 2028 . Broadcom is already supplying Google with the eighth version of the TPU, and OpenAI is supplying the Jalapeno accelerator; both are designed to outperform other GPUs.
The company also said that Anthropic is projected to become its largest XPU customer by 2027. So, Broadcom's business is booming, but the stock price fell about 6% after the company released its latest results. Does this make Broadcom shares a good investment ? Let's take a closer look at these results and .
Last quarter, the management team reported that demand for their AI accelerators and networking equipment remains very high. Remember, the company is enabling firms like OpenAI, Anthropic, and Google to work with it to develop their own XPUs or GPU accelerators. Similar to what Nvidia sells. But they also have networking equipment, the Tomahawk switch—it's an Ethernet switch that management says is growing regardless of whether companies buy their XPUs or Nvidia GPUs.
So, demand for this Tomahawk Ethernet switch is growing, regardless of whether the customer chooses Nvidia or their own XPUs. This is an important metric as hyperscalers like Alphabet, Amazon, Meta Platforms, and Microsoft increasingly turn to multiple vendors to build their AI data centers. Whereas other institutions and businesses may be more interested in choosing Nvidia for a comprehensive solution , buying everything from Nvidia, regardless of the price or performance of individual components.
They just like that Nvidia provides a complete solution and they don't have to go to multiple vendors. So hyperscalers are more adept at putting these components together, and they are more interested in working with Broadcom, even if they buy best-in- class GPUs from Nvidia. The management team reported that the momentum continued in the fourth quarter, and they expect AI semiconductor revenue to grow to $21.7 billion .
This is a 236% increase year-on-year. They expect their operating margin (non-GAAP) to remain unchanged at an excellent 66 %. This was one of the obstacles that worried investors. Broadcom has two segments. They have an AI solutions segment , as well as a software segment that generates higher gross profit margins.
Well, most of the growth is in the AI semiconductor segment with lower gross profit margins. So , investors were concerned about Broadcom's ability to maintain a gross operating profit margin, which they have been able to do so far because they are growing so rapidly that a lower gross profit margin is offset by a higher gross operating profit margin.
So let's take a closer look at the numbers. Net income rose to 29.6 billion, up 86% , and operating profit increased to 15.9 billion, up 171%. And it's these situations that confuse newcomers, because they see these numbers— 86% revenue growth, 170 % profit growth— and then they look at the reaction of the stock price, which fell by more than 5%, and they just scratch their heads.
What is going on here? How much better could the results be? And the stock price is falling, and I can understand the surprise. The stock market is a future-oriented mechanism, and actual results are sometimes not reflected in the reaction of the stock price because investors already had expectations about them before the quarterly reports were published.
So when the numbers are released, they don't have the impact one might expect. Free cash flow increased by 95% to 13.7 billion. Here you can see semiconductor solutions and infrastructure software—two segments that Broadcom reports on. And semiconductor solutions are a rapidly growing business area .
It grew by 127% year-on-year. This is a part of the business where management forecasts $115 billion in revenue in fiscal year 2027 and $230 billion in 2028. This is the fastest growing part of the business. It will become the dominant share in total income. But it also generates a lower gross profit margin than the infrastructure software business, which is still growing at 29%—a very good revenue growth rate for this segment, but it pales in comparison to semiconductor solutions.
Looking ahead, management is again forecasting solid growth to $34.8 billion, up about $5.3 billion from the previous quarter. And the operating profit margin should remain at 66 %. I think an operating profit margin of 66% or anything above 60% is healthy and good news for investors; Even as the company shifts focus to lower gross margin parts of the business, maintaining overall operating margins is a big win for Broadcom investors.
Cash flow from operating activities nearly doubled to $14.2 billion compared to $ 7.17 billion in the same quarter last year, and that's accelerating: for the first three quarters of 2026, cash flow from operations is $33 billion compared to $19.8 billion. Therefore, the growth of cash flow from operating activities is accelerating.
One thing that surprised me was the complete lack of common stock buybacks during the last completed quarter , despite the company generating $14 billion in cash flow, and its business model, which does not require large assets, does not require significant reinvestments , and yet—zero share buybacks.
Instead, they decided to pay off their debts. $5.6 billion to pay off debt. So, this was an interesting capital allocation choice from the current management team, who decided to reduce some of their debt, which had increased as a result of the VMware acquisition a little over 12 months ago. So they decide to reduce debt a little more than they do stock buybacks.
Of course, buying back or repaying debt reduces a company's interest expense, which will leave more cash flow for the management team to direct to share buybacks in the future if they so choose. And so, after the sell-off, Broadcom shares are now just 18. That's a truly cheap valuation for a company that's growing revenue as fast as Broadcom, with an operating profit margin of over 60% in a fast- growing category, with competitive advantages and strong ties to some of the technology's largest buyers .
I believe that at these levels it is a good deal for investors. Similarly, I updated my valuation of Broadcom using the discounted cash flow method, and the valuation came to $537 per share compared to the current market price of $354. So I see the potential for Broadcom shares to rise by about 52% over the next 12-18 months .
Of course, we will learn much more about the AI industry and one of its main components—the memory market—when Micron publish will go live to cover these results as soon as they come in, but it will be exclusive to channel sponsors. So , if you want to take part in this event, click the Join button below and see what channel sponsorship is all about.
You can join for less than $5 per month . I think you will really appreciate the value you get for every dollar you spend here. So, answering the question I asked in the title: is this a buying opportunity on the dip? I am excited about this purchasing opportunity. Yes, I rate this as a " buy" with high conviction and a high level of confidence.
I own Broadcom shares in my portfolio. I am interested in purchasing a larger quantity. I am more bullish on Broadcom stock after these results and the price correction than I was before them. And I am even more interested in increasing my share.
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