{"id":549,"date":"2026-09-03T13:09:00","date_gmt":"2026-09-03T04:09:00","guid":{"rendered":"https:\/\/andyguy.com\/?p=549"},"modified":"2026-09-03T02:28:57","modified_gmt":"2026-09-03T02:28:57","slug":"broadcom-avgo-q3-fy2026-earnings-review-price-target","status":"publish","type":"post","link":"https:\/\/andyguy.com\/en\/broadcom-avgo-q3-fy2026-earnings-review-price-target\/","title":{"rendered":"Broadcom (AVGO) Q3 FY2026 Earnings Review: Drops 51 TP3 T on 3.2x AI Revenue in After-Hour Trading; Why I Valued It at $415"},"content":{"rendered":"<p class=\"wp-block-paragraph\">I paused briefly while watching Broadcom (AVGO)&#039;s earnings report come out early this morning. Although revenue, profit, and cash were all at all-time highs, the stock price dropped by 51 TP3 T in after-hours trading. The reason was that the outlook for the next quarter was exactly $250 million lower than expectations. My conclusion is a Buy, with a 12-month target of $415; let me explain why I took that view point by point.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>The figures in this article are based on the Q3 FY2026 earnings announced after the US market close on September 2, 2026, and the closing price of $367.24 on the same day. The Korean Won exchange rate was standardized to 1,368.7 KRW per dollar as quoted in the Seoul Foreign Exchange Market at 3:30 PM on September 2.<\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"#three-lines\">Start with the conclusion in three lines<\/a><\/li>\n\n<li><a href=\"#earnings-review\">Let&#039;s take a closer look at Broadcom (AVGO)&#039;s Q3 FY2026 earnings.<\/a><\/li>\n\n<li><a href=\"#why-it-fell\">Why did it drop by 5% when earnings were good?<\/a><\/li>\n\n<li><a href=\"#call-highlights\">Things I noted down from the conference call: 6 clients, $115 billion, financing<\/a><\/li>\n\n<li><a href=\"#valuation\">Broadcom (AVGO) Valuation: Is it 20 times cheap right now?<\/a><\/li>\n\n<li><a href=\"#price-target\">This is how I calculated the target price of $415 for Broadcom (AVGO).<\/a><\/li>\n\n<li><a href=\"#risks\">Broadcom (AVGO) Risk: 4 Conditions for Switching to Sell<\/a><\/li>\n\n<li><a href=\"#beyond-data\">I saw things like this too, besides numbers.<\/a><\/li>\n\n<li><a href=\"#verdict\">Investment Conclusion: Broadcom (AVGO) Buy, Confidence Level is Medium<\/a><\/li>\n\n<li><a href=\"#faq\">Frequently Asked Questions<\/a><\/li>\n\n<li><a href=\"#sources\">Source and Notice<\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"three-lines\">Start with the conclusion in three lines<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Broadcom&#039;s revenue for this quarter was $29.591 billion (approx. 40.5 trillion won), up 861 TP3T from a year ago, and its non-GAAP earnings per share of $3.32 (approx. 4,544 won), which the company touts as its \u201ctrue strength,\u201d exceeded market expectations of $3.21 by 3.41 TP3T.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The reason the stock price fell is the outlook, not the earnings. The revenue guidance for the next quarter of $34.8 billion (approximately 47.6 trillion won) was 0.71 TP3T lower than the Bloomberg-compiled expectation of $35.05 billion.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">My 12-month baseline target price, derived by balancing the fair forward P\/E of 25x with the DCF results, is $415 (approximately 568,011 KRW). This is 131 TP3 T above the current price, and the investment rating is Buy with a confidence level of Medium.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"earnings-review\">Let&#039;s take a closer look at Broadcom (AVGO)&#039;s Q3 FY2026 earnings.<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">First, I\u2019ve summarized the report card on a single page. For the quarter ending August 2nd, revenue, operating profit, and free cash flow all reached record highs in the company&#039;s history. In the table, &quot;Consensus&quot; refers to the average of analysts&#039; forecasts\u2014in other words, the figures the market expected.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>item<\/th><th>FY26 Q3 Actual<\/th><th>Consensus<\/th><th>Compared to one year ago<\/th><th>verdict<\/th><\/tr><\/thead><tbody><tr><td>sales<\/td><td>$29.59 billion (approximately 40.5 trillion won)<\/td><td>$29.25 billion<\/td><td>+86%<\/td><td>Beat (+1.2%)<\/td><\/tr><tr><td>Non-GAAP EPS<\/td><td>$3.32 (approx. 4,544 won)<\/td><td>$3.21<\/td><td>+96%<\/td><td>Beat (+3.4%)<\/td><\/tr><tr><td>AI semiconductor sales<\/td><td>$16.7 billion (approximately 22.9 trillion won)<\/td><td>About $16 billion<\/td><td>+221%<\/td><td>Beat<\/td><\/tr><tr><td>Non-GAAP operating profit margin<\/td><td>67.9%<\/td><td>Approx. 66%<\/td><td>+2.4%p<\/td><td>Beat<\/td><\/tr><tr><td>Free cash flow<\/td><td>$13.67 billion (approximately 18.7 trillion won)<\/td><td>\u2014<\/td><td>+95%<\/td><td>46% of sales<\/td><\/tr><tr><td>Q4 Revenue Guidance<\/td><td>$34.8 billion (approximately 47.6 trillion won)<\/td><td>$35.05 billion<\/td><td>+93%<\/td><td>Miss (\u22120.7%)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">If you look at the chart, five lines are Beats and only the last line is a Miss. However, the stock price reacted to that last line. I will discuss this in detail in the next section.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Looking at the breakdown by business unit, semiconductor solution revenue reached $20.839 billion (approx. 28.5 trillion won), an increase of 1,271 TP3T, accounting for 701 TP3T of the total. Infrastructure software, centered on VMware, grew by 291 TP3T to $8.752 billion (approx. 12.0 trillion won). Within the semiconductor sector, the AI segment accounted for $16.7 billion, while the non-AI segment (smartphone components, telecommunications equipment chips, etc.) was $4.2 billion (approx. 5.7 trillion won). Non-AI semiconductors increased by only 51 TP3T compared to a year ago and remained unchanged from the previous quarter. Therefore, you can consider that the company&#039;s growth is effectively being driven entirely by the AI sector.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">What I paid the most attention to in these earnings was the margin structure. The gross profit margin (the profit remaining after deducting costs for every 100 won sold) fell to 751 TP3T, down 2.11 TP3T points from the previous quarter. This is because the cost proportion increased as high-priced memory called HBM was heavily incorporated into the custom AI chips (which the company calls XPUs) for Google and Antropic. Still, it was better than the 741 TP3T the company had previously stated. However, surprisingly, the operating profit margin (the profit remaining after deducting labor and R&amp;D expenses from every 100 won in sales) actually rose to 67.91 TP3T, up 2.41 TP3T points from a year ago. This is because while sales increased by 861 TP3T, non-GAAP operating expenses increased by only 2.51 TP3T. Simply put, it is like the store&#039;s sales nearly doubled while they barely hired any employees. I think this structure, where &quot;operating leverage&quot; offsets the gradual decline in gross profit margin, will continue for at least a few quarters.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The cash side is simpler. Subtracting $532 million in capital expenditures from $14.197 billion in cash inflow from operating activities results in a Free Cash Flow (FCF) of $13.665 billion, which is 461 TP3 T of revenue. This means that for every 100 won earned, 46 won remains as cash. Even after paying out $3.1 billion in dividends and repaying $5.6 billion in long-term debt this quarter, cash increased by $4.3 billion to $24 billion. There were no share buybacks this quarter.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you line up the last four quarters, you can see acceleration. Revenue was $18 billion \u2192 $19.3 billion \u2192 $22.2 billion \u2192 $29.6 billion; GAAP earnings per share were $1.74 \u2192 $1.50 \u2192 $1.91 \u2192 $2.68; and free cash flow was $7.5 billion \u2192 $8 billion \u2192 $10.3 billion \u2192 $13.7 billion. The quarterly revenue growth widened from $2.9 billion \u2192 $2.9 billion \u2192 $7.4 billion, and if the Q4 guidance is accurate, the next increase will be $5.2 billion.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"why-it-fell\">Why did it drop by 5% when earnings were good?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The stock, which closed at $367.24 (approx. 502,641 KRW) down 0.661 TP3T in regular trading, fell more than 51 TP3T in after-hours trading immediately following the earnings announcement, dropping to near $348 (approx. 476,308 KRW). Interestingly, the price actually rose slightly for a few minutes immediately after the announcement. Since the direction changed as the call option proceeded, it must be seen that the interpretation, rather than the numbers themselves, moved the stock price.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The ostensible reason is the fourth-quarter revenue guidance. Guidance is a company&#039;s self-proposed forecast for the next quarter, and $34.8 billion represents a growth of 931 TP3T over the past year. However, this was $250 million lower than the market expectation of $35.05 billion compiled by Bloomberg. The reason a difference of only 0.71 TP3T in revenue triggered a stock price reaction of 51 TP3T is that Broadcom has established a pattern over the past few quarters where &quot;guidance is always above expectations.&quot; Cody Acreley, an analyst at StoneX, told Yahoo Finance, &quot;For a company this heavily invested in AI, this level of &#039;bit and raise&#039; is insufficient.&quot; I saw it similarly.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The movements of other stocks on the same day are also a good reference. Credo Technologies (CRDO), which released earnings the day before, plunged 201 TP3T during regular trading on September 2, while Palantir (PLTR) and Snowflake (SNOW) also fell between 4 and 61 TP3T. Broadcom&#039;s guidance was released at a time when the question of &quot;how much better can things get?&quot; was hanging over AI infrastructure-related stocks in general. I <a href=\"https:\/\/andyguy.com\/en\/nvidia-nvda-q2-fy2027-earnings-cash-flow-analysis\/\">NVIDIA (NVDA) Q2 Earnings Article<\/a>As I pointed out earlier, in the current phase, stock prices are determined more by how high expectations are set than by the performance itself.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Compared to the 52-week high of $495 (approximately 677,506 KRW), the current price is 261 TP3T lower, and the after-hours price is 301 TP3T lower. The year-to-date return is 61 TP3T, lagging behind Nvidia&#039;s 201 TP3T. It seems this gap speaks to what the market is demanding from Broadcom.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"call-highlights\">Things I noted down from the conference call: 6 clients, $115 billion, financing<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">After reading the full text of the call, I saw that CEO Hock Tan unusually provided numerical figures for two years of AI revenue forecasts this time. He projected that AI semiconductor revenue in FY2026 would reach $58 billion (approx. 79.4 trillion KRW), surpassing the previous guidance of $56 billion; it is expected to double each year, reaching approximately $115 billion (approx. 157.4 trillion KRW) in FY2027 and $230 billion (approx. 314.8 trillion KRW) in FY2028. He stated that the supply to meet these figures has already been secured and that demand is even higher. There was also a mention of earnings per share exceeding $30 by FY2028.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The roadmaps for each customer were also quite specific. With Google, they began mass shipments of Ironwood (TPU v7) and started mass production of the next-generation TPU v8i. Antropic is said to become the largest customer starting next year, beginning with a 1GW (gigawatt, a unit of data center power scale) Ironwood deployment in 2026, followed by 5GW of TPU v8i in 2027 and an additional 10GW in 2028. For OpenAI&#039;s first custom chip, Jalape\u00f1o, 1.3GW deployment is underway in 2027 and is projected to exceed 5GW by 2028, while Meta plans to sequentially ship MTIA 3rd generation chips by the end of 2027, reaching 3GW by 2028. If we apply CEO Tan&#039;s statement of &quot;$20-$30 billion in revenue per GW&quot; to these figures, the calculation roughly matches where the revenue forecasts above were derived.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The networking sector (equipment that connects chips to exchange data) is just as fast as the chips. AI networking revenue has increased more than 2.5 times compared to a year ago, the 100Tbps Ethernet switch Tomahawk 6 is in mass production, and the design for the 200Tbps Tomahawk 7 has been completed. The mention that the Tomahawk Ultra, which handles even chip-to-chip connections within server racks via Ethernet, is being adopted in GPU clusters is something I previously discussed. <a href=\"https:\/\/andyguy.com\/en\/arista-networks-anet-stock-analysis-price-target-2026\/\">Arista Networks (ANET)<\/a>\ub098 <a href=\"https:\/\/andyguy.com\/en\/astera-labs-alab-stock-analysis-2026\/\">Astera Labs (ALAB)<\/a> It is content that also affects the competitive landscape of adjacent sectors.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The area that drew the most questions was financing. In June, the company established a platform called &quot;AI XPV&quot; with Apollo and Blackstone to support over 20GW of compute infrastructure for OpenAI and Antropics until 2028, and the first tranche of $35 billion (approximately 47.9 trillion won) has already been executed for Antropics&#039; 1GW deployment. Simply put, Broadcom designed a structure where external investors provide the funds for customers to purchase chips. CFO Ami Tunner stated that third-party financial partners handle asset acquisitions and financing independently, while Broadcom only provides &quot;small residual value guarantees if necessary.&quot; However, as analyst Melius pointed out, the previous quarterly report listed the maximum exposure (worst-case payout) for the first tranche at approximately $29 billion. No clear cap was issued during this call regarding how large this contingent liability could grow.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Software quietly played its part. VMware-centric infrastructure software maintained ARR (Annual Recurring Subscription Revenue) growth of 151 TP3T, and the operating profit margin rose to 841 TP3T. While the Q4 guidance of $8.7 billion is effectively stagnant, I view this business not as a growth engine, but as a buffer against the semiconductor cycle and a cash source for dividends and debt repayment.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"valuation\">Broadcom (AVGO) Valuation: Is it 20 times cheap right now?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Valuation is the process of determining whether a stock is cheap or expensive; let&#039;s start by establishing a baseline for earnings. For FY2026 non-GAAP earnings per share, adding approximately $3.81\u2014calculated backward from the Q4 guidance (revenue of $34.8 billion, operating margin of 661 TP3T, tax rate of 161 TP3T, and number of shares of 4.94 billion) to the Q1 $2.06, Q2 $2.44, and Q3 $3.32 results in $11.63 (approximately 15,918 KRW). The FY2027 consensus is $19.57 (approximately 26,785 KRW). I set the next 12-month (NTM) earnings per share I use for calculating the target price at approximately $18.20 (about 24,910 won), reflecting $3.81 in the fourth quarter and a gradual increase in the first three quarters of FY2027.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Dividing the current price of $367.24 by this $18.20 yields a forward P\/E of approximately 20.2 times. P\/E measures how many times the stock price is compared to one year&#039;s earnings; a ratio of 20 times implies that it would take 20 years for current earnings to accumulate to match the stock price. The reason the trailing GAAP P\/E of 61 times appears much higher is that acquisition-related intangible asset amortization and stock compensation expenses are cutting into GAAP earnings, and earnings are jumping in a stepwise manner every quarter. The fair multiple was determined at 25 times by mixing Broadcom&#039;s own average forward P\/E over the last 5 years (approx. 24\u201326 times) with the median of the AI semiconductor peer group (approx. 30 times) in a 7:3 ratio, and then subtracting 1\u20132 times to account for XPV contingent liabilities and customer concentration risk. Consequently, the current multiple is discounted by 191 TP3T relative to its fair value.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>event<\/th><th>Preceding P\/E<\/th><th>Recent quarterly revenue growth<\/th><th>note<\/th><\/tr><\/thead><tbody><tr><td>Broadcom (AVGO)<\/td><td>About 20 times<\/td><td>+86%<\/td><td>Customized AI Chips, Ethernet, and Software<\/td><\/tr><tr><td>NVIDIA (NVDA)<\/td><td>About 15 times<\/td><td>+106%<\/td><td>General Purpose GPUs, based on next fiscal year EPS<\/td><\/tr><tr><td>AMD (AMD)<\/td><td>About 30 times<\/td><td>+50%<\/td><td>MI Series GPUs and CPUs<\/td><\/tr><tr><td>Marvel (MRVL)<\/td><td>About 31 times<\/td><td>+37%<\/td><td>Custom Chips \u00b7 Optical Communication DSPs<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">You can view this table through the lens that &quot;if the growth rate is high and the P\/E is low, it is relatively cheap.&quot; The forward P\/E in the table is based on the next fiscal year provided by Yahoo Finance, so Broadcom appears at 18.8 times, whereas the 20.2 times in the main text is based on Net Tendered (NTM). By any standard, Broadcom is at the lowest multiple relative to its growth rate. It is more than 10 times cheaper than Marvell, which operates the same custom chip business, and is even cheaper than AMD, which has a lower growth rate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">DCF is a separate benchmark. DCF represents the &quot;theoretical fair value&quot; calculated by discounting a company&#039;s future cash earnings to their today&#039;s value and adding them up; I calculated it myself. Assuming FY2027 free cash flow of $72 billion (431 TP3T based on revenue of approximately $168 billion), and applying growth rates of 551 TP3T, 151 TP3T, 81 TP3T, and 51 TP3T for the following four years (decelerating sharply after reflecting the doubling of AI revenue in FY2028), a discount rate (WACC, the rate at which future money is discounted to its today&#039;s value) of 101 TP3T, a perpetual growth rate of 31 TP3T, and net debt of $35.6 billion, the result is approximately $350 per share. Under a bullish assumption (initial FCF $78 billion, growth 65%\u00b720%\u00b710%\u00b76%, WACC 9.5%), it is about $466, and under a bearish assumption ($65 billion, 30%\u00b75%\u00b73%\u00b72%, WACC 11%, perpetual growth 2.5%), it is about $190. Therefore, the lower end of the DCF range of $350\u2013$466 is near the current price, and based on the multiple, $455 (25x \u00d7 $18.2) is above that.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The point where the two metrics diverge is the key to this stock. The multiple strategy states, &quot;Buy a company whose earnings more than double in two years at 20 times,&quot; while the DCF strategy says, &quot;If growth drops to single digits after 2029, the current price is just right.&quot; My overall assessment is that it is undervalued\u2014that is, moderately undervalued. However, I have reflected nearly half of the warning from the DCF in the target price.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"price-target\">This is how I calculated the target price of $415 for Broadcom (AVGO).<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">We combined three growth rate assumptions. By weighting the past 3-year average annual revenue growth of approximately 451 TP3T (including the effect of the VMware acquisition) with 401 TP3T, the FY2027 consensus revenue growth of approximately 601 TP3T with 401 TP3T, and the AI infrastructure industry growth of approximately 351 TP3T with 201 TP3T, the weighted growth rate is approximately 491 TP3T. This figure was used to determine the range between scenarios, rather than for the target price itself.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>scenario<\/th><th>12-month target price<\/th><th>Compared to the current price<\/th><th>Probability<\/th><th>Key assumptions<\/th><\/tr><\/thead><tbody><tr><td>Base<\/td><td>$415 (approx. 568,011 won)<\/td><td>+13%<\/td><td>45%<\/td><td>6:4 trade-off between a $455 multiple and a $350 DCF. Achieve $115 billion in AI revenue by FY2027 and defend a gross profit margin of 73%.<\/td><\/tr><tr><td>Bull<\/td><td>$520 (approx. 711,724 won)<\/td><td>+42%<\/td><td>30%<\/td><td>28x forward \u00d7 NTM EPS of $18.6. Antropic and OpenAI deployments brought forward, guidance returns to an upward pattern.<\/td><\/tr><tr><td>Bear<\/td><td>$310 (approx. 424,297 won)<\/td><td>\u221216%<\/td><td>25%<\/td><td>18x forward \u00d7 EPS $17.2. Entering a phase of digesting AI investments, expanded guarantee of XPV residual value, gross profit margin collapses to 70%.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Multiplying the probabilities of the three scenarios and adding them up gives 0.45\u00d7415 + 0.30\u00d7520 + 0.25\u00d7310 = $420, and the expected return relative to the current price is +14.41 TP3T. The reason for raising the weights from the default 50\/25\/25 to the bullish 301 TP3T is that the 191 TP3T discount based on the multiple overlaps with the number of catalysts (TPU v8i mass production, Jalapeno batch, MTIA shipment, Tomahawk 7). The reason for leaving the bearish position at 251 TP3T is that the default DCF is nearly equal to the current price, and the cap on financing contingent liabilities is uncertain.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There is a gap of $111 between the Wall Street average target price of $526 (approximately 719,936 KRW) and my target of $415. The consensus essentially reflects the earnings two years from now by multiplying the FY2028 earnings per share of $30 by a multiple of around 20, but I did not factor that much forward. Written in April <a href=\"https:\/\/andyguy.com\/en\/broadcom-avgo-ai-asic-stock-analysis-2026\/\">Broadcom (AVGO) AI ASIC Analysis<\/a>We had previously projected it at $480, but the reason it has been lowered this time is not because the profit estimate was reduced, but because we newly applied DCF compromises and risk discounting. I will explain this further later.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"risks\">Broadcom (AVGO) Risk: 4 Conditions for Switching to Sell<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Regarding risk, I think it is better to write down in advance what conditions will trigger if I change my opinion, rather than vaguely saying &quot;be careful.&quot; I will reconsider if two of the four conditions below are triggered simultaneously.<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Customer focus and the financial strength of AI labs.<\/strong> Most of the AI revenue comes from six customers, including Google, Meta, Antropic, and OpenAI. Among these, Antropic and OpenAI are relying on XPV financing as they are not yet able to cover data center investments with their own earnings. The indicators to check are the financing news of the two companies and the &#039;Maximum Exposure&#039; item in Broadcom&#039;s quarterly report (10-Q).<\/li>\n\n<li><strong>The speed at which the gross profit margin is declining.<\/strong> The Q4 guidance of 731 TP3T is 51 TP3T points lower than the 781 TP3T from a year ago. This is fine as long as operating leverage offsets it, but if the gross profit margin breaks below 701 TP3T when revenue growth falls below 501 TP3T, the operating profit margin will start to decline as well. You should look at the quarterly non-GAAP gross profit margin and the proportion of custom chip sales.<\/li>\n\n<li><strong>Supply bottlenecks and batch delays.<\/strong> Although the company claims to have secured supplies of substrates, HBM, and state-of-the-art wafers, revenue recognition is delayed if the land, power, and buildings for the customer&#039;s data center are delayed. CEO Tan also stated, \u201cThe uncertainty is not about customer interest, but whether the infrastructure is ready on time.\u201d Investment guidance from hyperscalers and <a href=\"https:\/\/andyguy.com\/en\/dell-technologies-ai-server-stock-analysis-2026\/\">Dell<\/a> You just need to look at how much of the same server vendor&#039;s order backlog turns into revenue.<\/li>\n\n<li><strong>Reversal of competition with general-purpose GPUs.<\/strong> The logic behind custom chips is that they perform better than GPUs for our company&#039;s work and cost half. Investment appeal diminishes if NVIDIA&#039;s next-generation products narrow this cost gap, or if the lifespan of custom chips is shortened due to customers frequently changing their AI model structures. The ratio of GPUs to custom chips that clients state they will use during calls serves as an indicator.<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Debt is relatively less of a concern. The average interest rate on the total fixed-rate debt of $59.6 billion (approximately 81.6 trillion won) is 41 TP 3 T, and the average maturity is 7.4 years. With quarterly free cash flow of $13.7 billion, it is a scale that allows for the repayment of more than $5 billion each quarter, even after paying dividends.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"beyond-data\">I saw things like this too, besides numbers.<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">What lingered the longest after listening to the call wasn&#039;t the earnings report, but the length of the answer to the financing question. I understand CEO Tan&#039;s conviction that Antropic and OpenAI will become the &quot;hyperscalers of the future,&quot; but the relationship where a supplier designs a customer&#039;s financing structure reminded me of the vendor financing of telecommunications equipment companies in the early 2000s. The difference now is that demand for the asset (AI chips) actually exceeds supply, and the guarantee is limited to a small residual value. However, if the definition of &quot;small&quot; is listed as $29 billion in the quarterly report, I think I would look to see how that number changes in the next report before looking at the target price.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One more thing. A stock falling 51 TP3 T on a shortfall of $250 million in guidance means that &quot;perfect execution&quot; is already priced in. However, the multiple is only 20 times. I understood the reason these two facts hold true simultaneously as follows: the market trusts the figures for 2027 but does not trust those beyond 2029. Therefore, I view this stock as a &quot;core position in the AI investment cycle&quot; within my portfolio, rather than a &quot;position to bet on a next-quarter surprise.&quot; The reason I lowered the target price compared to my April post is not because the company has deteriorated, but because I changed my mind and decided not to pay the full value for earnings two years from now.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"verdict\">Investment Conclusion: Broadcom (AVGO) Buy, Confidence Level is Medium<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">There are three reasons why I rated it as Buy. First, the forward P\/E of 20.2x represents a discount of 191 TP3T from the fair value of 25x. Second, the probability-weighted expected return of +14.41 TP3T exceeds the +121 TP3T threshold I use as my Buy benchmark. Third, fundamentals are improving with growth of 861 TP3T in revenue, 921 TP3T in operating profit, and 951 TP3T in free cash flow, and a two-year AI revenue forecast has been presented alongside supply securing. Since these three signals point in the same direction, the conclusion is Buy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are three reasons why I set the confidence level to Medium rather than High. First, the DCF base of $350 is nearly equal to the current price, so the two valuation metrics do not align; second, the maximum exposure to XPV financing remains open; and third, the short-term trend is opposite because the stock price reaction immediately following earnings is negative. Although the direction aligns with the consensus, where 45 out of 46 Wall Street analysts recommend a Buy or higher, my rationale is based on multiple discounts and cash generation strength rather than alignment with the consensus, and my target price is 211 TP3T lower than the consensus.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">From an execution perspective, if the regular session opens near $348 after hours, the upside potential to the baseline target price widens to 191 TP3T. Conversely, if the next quarterly report shows that XPV&#039;s maximum exposure has increased significantly compared to the first tranche, or if the Q4 gross margin falls below 721 TP3T, I will lower my confidence to Low and re-evaluate my opinion.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"faq\">Frequently Asked Questions<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What is the 12-month target price for Broadcom (AVGO)?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The baseline target price is $415 (approximately 568,011 KRW), which is 131 TP3T above the current price of $367.24. The bullish scenario is $520, the bearish scenario is $310, and the expected price calculated by multiplying probabilities is $420.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why did the stock price drop 51 TP 3 T in after-hours trading when the earnings were good?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">This is because the fourth-quarter revenue guidance of $34.8 billion was 0.71 TP3T lower than the Bloomberg consensus of $35.05 billion. Although both third-quarter revenue and profit exceeded expectations, the market reacted to the break in the pattern of upward guidance that had continued for the past few quarters.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What are Broadcom&#039;s revealed AI revenue forecasts for FY2027 and FY2028?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">It means doubling every year from $58 billion in FY2026 to approximately $115 billion in FY2027 and approximately $230 billion in FY2028. The company stated that it has secured supply to meet this outlook and will not update the figures quarterly.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is the biggest bear trigger for Broadcom (AVGO)?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">This is a case where the residual value guarantee of XPV financing leads to actual losses as funding for AI labs like Antropic and OpenAI becomes blocked. The second is that the gross profit margin falls below 701 TP3T as the proportion of custom chips increases.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is a forward P\/E of 20x currently a reasonable valuation to enter?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">This is the discount range of 191 TP3T compared to the fair multiple of 25x that I calculated. However, since the DCF base is $350, which is similar to the current price, those who anticipate significant growth slowdown after 2029 might view this as fair rather than discounted.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"sources\">Source and Notice<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/investors.broadcom.com\/news-releases\/news-release-details\/broadcom-inc-announces-third-quarter-fiscal-year-2026-financial\" rel=\"nofollow noopener\" target=\"_blank\">Broadcom Inc. Q3 FY2026 Earnings Press Release (2026-09-02)<\/a><\/li>\n\n<li><a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/0001730168\/000173016826000076\/avgo-20260902.htm\" rel=\"nofollow noopener\" target=\"_blank\">SEC Form 8-K, Broadcom Inc. (2026-09-02)<\/a><\/li>\n\n<li><a href=\"https:\/\/www.investing.com\/news\/transcripts\/earnings-call-transcript-broadcom-tops-q3-2026-estimates-as-ai-sales-surge-93CH-4886849\" rel=\"nofollow noopener\" target=\"_blank\">Investing.com, FY2026 Q3 Conference Call Full Text<\/a><\/li>\n\n<li><a href=\"https:\/\/finance.yahoo.com\/markets\/article\/broadcom-stock-sinks-as-chipmaker-results-not-enough-to-keep-investors-happy-205929042.html\" rel=\"nofollow noopener\" target=\"_blank\">Yahoo Finance, After-Hours Stock Reactions and Consensus (2026-09-02)<\/a><\/li>\n\n<li>Stock Price \u00b7 Multiples \u00b7 Competitor Indicators: Yahoo Finance (Close as of 2026-09-02) \/ Exchange Rate: Seoul Foreign Exchange Market 3:30 PM, 2026-09-02<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This article was drafted using AI research tools based on company disclosures and public market data, and I personally verified the figures, conversions, and logic before publication. Its purpose is to provide information, not to recommend buying or selling specific stocks. Please remember that stock prices, exchange rates, consensus, and earnings estimates are all based on data as of September 2, 2026, and are subject to change thereafter; investors are solely responsible for their own investment decisions and the consequences thereof.<\/p>","protected":false},"excerpt":{"rendered":"<p>Despite Broadcom (AVGO) exceeding expectations with Q3 FY2026 revenue of $29.59 billion (+861 TP3 T) and non-GAAP EPS of $3.32, the stock price fell 51 TP3 T in after-hours trading. This was because the Q4 guidance of $34.8 billion fell short of the consensus of $35.05 billion by $250 million. The 12-month target price, based on a compromise between a fair forward P\/E of 25x and DCF, is $415 (approx. 568,011 KRW), and the investment rating is Buy (Medium confidence).<\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[62,152],"tags":[80,50,5,79,207,55],"class_list":["post-549","post","type-post","status-publish","format-standard","hentry","category-ai-datacenter","category-us-stock-analysis","tag-avgo","tag-50","tag-5","tag-broadcom","tag-earnings-report","tag-stock-analysis"],"_links":{"self":[{"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/posts\/549","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/comments?post=549"}],"version-history":[{"count":2,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/posts\/549\/revisions"}],"predecessor-version":[{"id":551,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/posts\/549\/revisions\/551"}],"wp:attachment":[{"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/media?parent=549"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/categories?post=549"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/andyguy.com\/en\/wp-json\/wp\/v2\/tags?post=549"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}