Broadcom Inc. (NASDAQ: AVGO) has announced that its AI chip revenue is projected to account for approximately 54% of its fiscal third-quarter revenue, a significant increase from 49% in the previous quarter. Despite this positive development, the company's shares have faced headwinds, declining about 20% in June, according to a report from Benzinga. The stock saw a modest gain of 1.5% ahead of midday trading in New York on June 29, 2026.
Revenue Shift and Margin Concerns
The rising share of AI revenue underscores Broadcom's strategic pivot toward custom AI chips, moving away from its traditional mix of chip and software offerings. CEO Hock Tan highlighted the momentum, noting that AI semiconductor revenue surged 143% year-over-year to $10.8 billion in the second quarter. CFO Kirsten Spears reported that adjusted EBITDA reached 69% of revenue in Q2 and guided for approximately 68% in Q3.
However, investors remain cautious about profit margins. Reuters quoted Tan stating that custom AI chips have thinner margins than Broadcom's networking switches, primarily due to the high-bandwidth memory required. This memory is supplied by SK Hynix and Samsung Electronics, adding cost pressures.
Market Reaction and Analyst Views
JPMorgan's Harlan Sur maintained a $580 price target on Broadcom, above the MarketBeat consensus of around $493. The focus for bulls has shifted to 2027, with Broadcom forecasting AI chip revenue exceeding $100 billion for next year. D.A. Davidson's Gil Luria described the outlook as "very encouraging."
The Motley Fool characterized the recent drop as a buying opportunity, noting Broadcom had gained nearly 40% year-to-date at its peak. The article highlighted Alphabet, Meta, Anthropic, and OpenAI as key AI partners.
Alphabet and TPU Uncertainty
There is some concern that Alphabet may shift more TPU business away from Broadcom. However, JPMorgan's Sur pointed to a long-term deal with Google that extends through future TPU versions up to v11. MediaTek has also been mentioned as a potential alternative supplier.
OpenAI's Jalapeño Chip and Partnerships
OpenAI's custom AI chip, codenamed Jalapeño, adds scale but is not expected to have an external sales channel soon. Developed in nine months, the chip is being tested in labs and will be deployed at gigawatt scale with Microsoft and other data center partners. Taiwan Semiconductor Manufacturing Co. (TSM) will manufacture the chips, while Celestica Inc. (CLS) handles server systems.
Broader Market Context
Broadcom's shift toward AI mirrors broader industry trends, with Nvidia (NVDA), Alphabet (GOOGL), and Marvell Technology (MRVL) also active in the space. The key test for Broadcom remains whether it can sustain adjusted EBITDA margins in the high-60% range as AI chips become a larger portion of sales. OpenAI plans to release a technical report on Jalapeño's performance in the coming months.
