Broadcom (AVGO) Stock: Microsoft Partnership Signals Major Shift in Custom Chip Market

TLDR

• Broadcom announces fiscal Q4 2025 results December 11 with analysts forecasting $1.87 EPS and $17.5 billion revenue
• Shares have surged 68% this year on custom AI chip demand from hyperscale clients
• Microsoft deal to develop Azure AI chips with Broadcom reportedly in works
• Morgan Stanley expects Broadcom AI chip growth to exceed Nvidia’s in 2026
• Morningstar projects AI revenue doubling to $40 billion in fiscal 2026

Broadcom prepares to release fiscal fourth-quarter earnings on December 11. The chip maker has climbed 68% in 2025 as AI partnerships accelerate growth across its semiconductor division.

Broadcom Inc., AVGO

Wall Street expects earnings of $1.87 per share, representing 32% growth from last year. Revenue estimates reach $17.5 billion, up 24% annually. The company’s custom chip business has become central to investor sentiment.

Broadcom designs application-specific integrated circuits for major tech companies. Google, Meta, and Apple use these chips for AI training and inference. The custom approach lets cloud providers optimize performance for specific workloads.

Microsoft is reportedly shifting its custom chip development to Broadcom from Marvell. The move would make Broadcom a primary supplier for Microsoft’s Azure AI infrastructure. This partnership adds to the company’s hyperscale client base.

TPU Success Attracts New Customers

Google’s Trillium TPU, built in partnership with Broadcom, has gained traction. Google used these chips exclusively to train its Gemini 3 model. The model currently outperforms competitors in benchmarks.

Google now works on a deal to provide TPU capacity and chips to Meta. This arrangement could expand Broadcom’s production volume and attract additional custom chip clients. Mizuho analyst Vijay Rakesh sees steady TPU demand as Google scales Gemini 3 deployment.

Rakesh maintains an Outperform rating with a $435 price target. His supply chain research indicates growing AI workloads at Meta, Apple, and Anthropic. These trends should support revenue expansion through 2026.

Wall Street Raises Targets

Morgan Stanley analyst Joseph Moore lifted his price target after conducting Asia supply chain checks. He found stronger AI demand and momentum in Broadcom’s ASIC business. Moore projects Broadcom’s AI chip revenue will grow faster than Nvidia’s next year.

Twenty-three analysts rate the stock a Buy while two assign Hold ratings. The consensus price target sits at $425.13, implying 8.94% upside. No analysts currently rate the stock a Sell.

Morningstar assigns a $365 fair value estimate with a 3-star rating. The research firm expects AI revenue to reach $40 billion in fiscal 2026, double the current level. This forecast depends on continued strength in custom chip orders from cloud providers.

Strong Cash Flow Supports Debt Reduction

Broadcom generates over 40% free cash flow margins. The company produced $30 billion in free cash flow during fiscal 2025. Management has used this cash to pay down debt from the VMware acquisition.

Gross debt stands at $68 billion with half related to the VMware deal. The debt-to-EBITDA ratio improved from 3.5 times to 2.1 times over the past year. Cash balances total $9 billion.

The company holds a wide economic moat from chip design expertise and software switching costs. Its networking products serve Apple, Google, Cisco, and Arista. The software portfolio includes virtualization and mainframe technologies.

Investors await fiscal 2026 guidance when Broadcom reports December 11 results.

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