Broadcom’s Real Constraint Isn’t Demand. It’s Supply.

Broadcom Inc. (NASDAQ:AVGO) is the dominant player in the ASIC market for AI inference, commanding a 75% share according to Piper Sandler. Analyst David O'Connor initiated coverage on the stock with an Overweight rating and a $460 price target, highlighting that demand is currently twice the existing supply. This presents a critical challenge for the company, as the ability to meet customer needs hinges on its capacity to supply chips.

Broadcom's strength lies in its existing customer base, as the firm does not need to win new clients but must instead continue expanding shipments to its current customers. The company is actively ramping up Meta's MTIA program, OpenAI's Jalapeno chips, and two other customer deployments, with Google's TPU program being Broadcom's largest volume ASIC operation.

Additionally, Anthropic is scaling deployments using AVGO-enabled TPU compute. The company's networking attach rate is currently around 30%, which could generate an estimated $20-30 billion in total content per gigawatt of deployed capacity. Broadcom has a 12-gigawatt demand outlook for fiscal 2027, which could rise to an estimated 38 gigawatts by fiscal 2030, suggesting a potential 51% EPS compound growth rate over the next decade.

However, the company's growth is contingent upon its ability to scale manufacturing and support infrastructure to keep pace with demand. Broadcom's custom AI chip business also faces risks such as pricing power erosion, customer concentration, and lower relative gross margins. While Piper Sandler's AI valuation is based on a 14x earnings multiple, the firm's growth trajectory hinges on Broadcom's ability to secure sufficient supply to convert an estimated 12GW of fiscal 2027 demand into revenue and beyond.

Despite the potential upside, the analyst believes that other AI stocks may offer greater upside potential and less downside risk.