Broadcom (AVGO) AI Revenue to Hit $240B by 2028, Morningstar Says Buy

Everyone is busy watching Sam Altman and Dario Amodei do their AI Safety World Tour at the UN Security Council this week. Meanwhile, the companies actually building the infrastructure those two CEOs depend on are printing money in silence. Enter $AVGO.

Morningstar's latest deep-dive on Broadcom makes a case that's hard to ignore: AI chip revenue (the XPU segment) already exceeds 50% of total revenue, and management has guided that number to hit $120 billion in fiscal 2027, then double again to $240 billion in fiscal 2028. That's not a typo. Morningstar assigns the company a wide economic moat rating and a price target of $650, and the logic actually holds up on closer inspection.

Here's what makes Broadcom's position genuinely different from the generalized GPU arms race. Its XPUs are custom co-designed processors built hand-in-glove with specific customers including Google for its TPU, Meta, Anthropic, and OpenAI. These chips offer lower marginal cost and better power efficiency than Nvidia's off-the-shelf GPUs, and they're optimized for large-scale inference workloads, which is where the real day-to-day AI compute happens. The hyperscalers love this because it means they're not overpaying for capabilities they don't need.

The bull case: customer lock-in is as sticky as it gets. Once Google co-designs a chip with you across multiple product generations, switching costs are enormous. Add the VMware software segment (around 30% of revenue) providing recurring cash flows, and you have a business that doesn't need the AI hype cycle to keep performing. The bear case: at these valuations, any slowdown in hyperscaler capex spending, especially with the 10-year Treasury yield sitting at 5.15% and energy costs spiraling from Strait of Hormuz disruptions, could compress multiples fast. Tech multiples and a 5% risk-free rate are uncomfortable roommates.

It's also worth noting the macro backdrop here. Bloomberg's coverage of the Trump-Xi summit this week flagged a crude oil surge of over 3% on potential US-Iran negotiations, while gold fell. Energy cost pressure is not going away, and AI data centers are extraordinarily power-hungry. That's a headwind for the whole sector, but Broadcom's power-efficient custom silicon is relatively better positioned than most.

Broadcom is the kind of stock that doesn't get the meme treatment, doesn't make headlines when Sam Altman testifies, and doesn't need to. It just ships chips to the people who do.