TLDR
- Mizuho analyst Vijay Rakesh reaffirmed a Buy rating on Broadcom with a $410 price target, calling the company the “King of AI Custom Silicon.”
- Broadcom’s stock has gained over 46% year-to-date, driven by strong demand for custom AI chips and ASICs.
- The analyst addressed concerns about a $10 billion AI Racks deal with a fourth customer, believed to be OpenAI, estimating limited EPS impact of 3-4%.
- Mizuho projects Broadcom’s AI revenues will reach $60 billion in fiscal 2027 and $75 billion in fiscal 2028, above Street estimates.
- The firm sees potential for faster growth if Broadcom secures more AI Racks deals compared to traditional XPU and networking products.
Broadcom shares continue to attract positive attention from Wall Street analysts. Mizuho’s Vijay Rakesh reinforced his Buy rating on the stock with a $410 price target after meeting with company management.
The chip maker has posted impressive gains this year. AVGO stock has climbed more than 46% year-to-date as investors bet on the company’s custom AI chip business.
Rakesh maintains that Broadcom holds the top position in custom AI silicon. The analyst highlighted accelerating ASIC revenues and expanding customer engagement as key drivers.
One major topic during the management meeting involved Broadcom’s fourth AI customer. Mizuho believes this customer is OpenAI, with an expected $10 billion in revenue from AI Racks.
The analyst clarified an important detail about this deal. Non-ASIC and networking costs will be passed through without margin stacking, which differs from some investor assumptions.
Revenue Breakdown and Margin Impact
Rakesh broke down the financial implications of the OpenAI relationship. He estimates that XPU and networking components make up about 80% of the bill of materials for these AI Racks.
With OpenAI Rack revenues projected between $10 billion and $24 billion from fiscal 2026 through fiscal 2028, there will be some margin pressure. The analyst expects gross margin dilution of 166 basis points in fiscal 2026.
That dilution increases to 224 basis points in fiscal 2027. By fiscal 2028, it reaches 286 basis points.
The EPS impact appears manageable though. Rakesh estimates the hit at roughly $0.24 to $0.61, representing just a 3-4% negative effect on earnings.
The analyst noted that OpenAI might accelerate its Titan chip development in fiscal 2027 and 2028. Most of the XPU team comes from TPU backgrounds, bringing valuable experience to the project.
Bullish Revenue Projections
Mizuho’s revenue forecasts for Broadcom’s AI business exceed Wall Street consensus. Rakesh projects fiscal 2027 AI revenues of $60 billion and fiscal 2028 revenues of $75 billion.
These numbers run higher than the Street’s expectations. Wall Street currently forecasts $57 billion for fiscal 2027 and $62 billion for fiscal 2028.
The analyst sees room for upside if Broadcom wins more AI Racks deals. This potential comes from the company ramping more complete rack solutions compared to standalone XPU and networking products.
Rakesh ranks as the 81st best analyst out of more than 10,000 tracked by TipRanks. His track record shows a 65% success rate with an average return of 24.3% per rating over one year.
The company recently achieved a technical milestone with Meta. Broadcom’s Co-Packaged Optics technology reached one million cumulative 400G equivalent port device hours without disruptions.
This technology cuts optics power consumption by 65% versus traditional solutions. The company also announced a $5 billion senior notes offering with various maturity dates between 2030 and 2038.
Broadcom currently holds a market value of $1.6 trillion. The company reported 28% year-over-year revenue growth in its most recent results.
Wall Street maintains a Strong Buy consensus on AVGO stock with 26 Buy ratings and two Hold ratings. The average price target sits at $376.42, suggesting 11.3% upside from current levels.
