Goldman's AI Investment: Broadcom's Rapid Growth Poses a Threat to Nvidia's Leadership

Broadcom's AI Momentum Drives Stock Surge

Broadcom (AVGO) experienced an 11% jump in its share price in early November after Goldman Sachs raised its price target from $380 to $435. The upgrade was attributed to strong demand for Broadcom’s AI infrastructure solutions and its expanding collaborations with major players such as Google and OpenAI.

Goldman Sachs analyst James Schneider, who continues to recommend buying the stock, pointed to ongoing strength in Broadcom’s AI business during the fourth quarter. He forecasts that the company’s AI-related revenue could surpass $45.4 billion in fiscal 2026, representing a remarkable 128% increase compared to the previous year, as reported by CNBC.

This positive outlook follows Google’s introduction of its Gemini 3 AI model, which utilizes tensor processing units (TPUs) designed by Broadcom. There are also reports that Meta is evaluating the use of these TPUs in its data centers. These developments highlight Broadcom’s expanding influence in the AI chip sector, where it is emerging as a key competitor to Nvidia (NVDA), the current market leader with an 85% share, according to Seeking Alpha.

Key Drivers for Broadcom’s Growth

• AI Revenue Outlook: Goldman Sachs expects Broadcom’s guidance for AI revenue in fiscal 2026 to show growth of more than 100%, fueled by Google’s increasing adoption of TPUs and a long-term partnership with OpenAI.
• Major Customer Contributions: Investors will closely watch how much Google and OpenAI contribute to Broadcom’s top line, especially as Google shifts from cloud-based to on-premise TPU deployments, which could accelerate spending.
• Profitability Trends: The company’s custom XPU segment, which accounts for 65% of its AI-related revenue, is expanding quickly. However, high capital investments may temporarily pressure gross margins.

Industry Outlook and Competitive Landscape

Market analysts at Mizuho have noted that Meta’s potential multi-billion dollar investment in TPUs by 2027 could further strengthen Broadcom’s ASIC business. Meanwhile, Bank of America has reaffirmed its Buy ratings for AVGO, NVDA, and AMD, citing the rapid expansion of the AI data center market, which could reach $1.2 trillion by 2030.

Although Nvidia remains dominant, Broadcom’s custom chips are gaining traction as major cloud providers like Google and Meta diversify their AI hardware. Broadcom’s expertise in networking, including its Tomahawk Ultra switches that support massive AI clusters, and VMware’s software division, which generated $6.8 billion in third-quarter revenue, are also contributing to its momentum.

Risks and Challenges

Despite the optimism, there are notable risks. Analysts warn that Broadcom’s sales are heavily reliant on a small group of large customers. Additionally, Nvidia’s Blackwell chip lineup is sold out through 2026, which could limit Broadcom’s ability to capture additional market share. The stock’s high valuation—trading at more than 60 times trailing earnings—also makes it susceptible to market corrections or a slowdown in AI investment.

Nevertheless, Goldman Sachs and other industry experts anticipate that global sales of AI semiconductors could reach $100 billion by 2027, with Broadcom’s share potentially doubling to 20%, according to Seeking Alpha.