Shares of Broadcom Inc. (NASDAQ:AVGO) recently dipped, prompting fresh debate over valuation and timing. Wells Fargo believes the selloff is an opportunity, not a red flag. This Broadcom stock outlook examines why analysts see compelling upside tied to artificial intelligence, software scale, and improving earnings visibility—while also weighing the risks embedded in a premium valuation.
Why Broadcom Stock Pulled Back
Broadcom shares slipped after a cluster of short-term concerns rattled sentiment. Reports of a Chinese directive discouraging U.S. software adoption, a multibillion-dollar debt offering, and notable insider stock sales converged, briefly compressing confidence. Despite the headlines, Wells Fargo views these as transient issues rather than thesis breakers.
The firm upgraded Broadcom to “Overweight” from “Equal-weight,” arguing that the pullback offers a more attractive entry ahead of accelerating catalysts through 2026 and 2027—particularly as Broadcom deepens strategic ties with Alphabet Inc. (NASDAQ:GOOGL) on tensor processing units (TPUs).
Wells Fargo’s Bullish Revisions
A central pillar of this Broadcom stock outlook is Wells Fargo’s meaningful estimate increases. The firm lifted calendar 2026 revenue and EPS forecasts to $100.3 billion and $10.80, respectively, from $97 billion and $10.36. For 2027, projections jumped to $143.8 billion in revenue and $15.35 in EPS.
Those revisions hinge on AI momentum. Wells Fargo now expects Broadcom’s AI semiconductor revenue to reach $52.6 billion in 2026 and $93.4 billion in 2027—implying 116% and 78% year-over-year growth. If realized, that scale cements Broadcom as a core infrastructure supplier to hyperscalers and enterprise AI workloads.
Broadcom’s Business Mix and Scale
Headquartered in Palo Alto, Broadcom is one of the world’s largest semiconductor companies, spanning custom silicon, connectivity, networking, and a growing infrastructure software portfolio. With a market capitalization near $1.66 trillion, Broadcom pairs hardware leadership with software scale, including virtualization and security offerings.
Performance has been strong. AVGO shares are up roughly 53% over the past year and about 25% over the last six months, outpacing the State Street Technology Select Sector SPDR ETF (NYSEARCA:XLK). That outperformance underscores market confidence—but also contributes to valuation concerns.
Valuation: Premium With a Case
AVGO currently trades around 40.8x forward adjusted earnings and 25.5x sales—both above industry benchmarks and its five-year averages. This premium means execution matters. The bull case rests on sustained AI demand, margin durability, and software-led cash flow.
Income investors also benefit. Broadcom has increased its dividend for 15 consecutive years and pays $2.60 annually per share, yielding roughly 0.76%. While the yield is modest, the consistency reinforces capital discipline alongside growth investments.
Earnings Strength Validates the Thesis
Broadcom’s fiscal 2025 fourth-quarter results provided tangible proof points. Revenue rose 28% year over year to $18.02 billion, beating expectations, while adjusted EPS climbed 37% to $1.95. Profitability followed: non-GAAP operating income increased 35% and non-GAAP net income rose 39%.
AI semiconductor revenue surged 74%, well above guidance, highlighting robust demand and strong execution. Infrastructure software—housing VMware—also impressed, with sales up 19% and accelerating sequentially, easing concerns about customer churn post-integration.
Balance sheet metrics improved as well. Cash and equivalents reached $16.2 billion at quarter-end, up from $10.7 billion in the prior quarter, supporting flexibility amid investment and shareholder returns.
What Management and Analysts Expect Next
Looking ahead, management expects AI semiconductor revenue to double year over year to $8.2 billion in Q1 fiscal 2026, with total revenue guided to $19.1 billion and adjusted EBITDA margins of 67%. Consensus forecasts call for Q1 EPS of $1.66, up nearly 19% year over year. Full-year EPS is projected to climb 49% in 2026 and another 46% in 2027.
Analyst sentiment aligns with this Broadcom stock outlook. Wells Fargo raised its price target to $430, while Mizuho boosted its target to $480. Overall, Wall Street assigns AVGO a “Strong Buy,” with a mean price target of $455.22—implying about 29% upside—and a Street-high target of $535 suggesting even more room to run.
Bottom Line
The recent dip has reopened the debate on timing, but the fundamentals remain compelling. With AI revenue scaling rapidly, software momentum building, and earnings visibility improving, Wells Fargo’s buy-the-dip call finds support in the data. For investors comfortable with premium valuations, this Broadcom stock outlook suggests the pullback may be a strategic entry into a long-duration growth story.
Featured Image: Megapixl
