Broadcom Inc. (NASDAQ: AVGO) closed Friday at $357.90, but a fresh upgrade from Macquarie is pushing investors to look beyond the current quarter. Analyst Arthur Lai lifted the stock to Outperform from Neutral, setting a price target of $490—a move that signals confidence in the company's long-term AI growth story.
The upgrade comes with a strikingly specific projection: Macquarie estimates that Anthropic, the AI research company, could purchase more than $40 billion from Broadcom in fiscal 2028. This would represent a significant portion of Broadcom's anticipated $230 billion AI semiconductor revenue for that year, as outlined by CEO Hock Tan during the latest earnings call.
Macquarie's target implies a 36.9% upside from Friday's close and sits just $5 below Broadcom's 52-week high of $495. The bullish stance suggests that the market's concerns about Google's in-house chip efforts are already priced in, and that Anthropic's growth can more than compensate for any potential loss of business.
The timing of the upgrade is notable. Macquarie had previously downgraded Broadcom to Neutral in June, citing Google's insourcing strategy. Now, the firm believes the risk is reflected in the share price, while Anthropic emerges as a powerful new catalyst. The upgrade leaves fiscal 2027 earnings estimates unchanged but raises fiscal 2028 earnings by 12%, indicating that the conviction is heavily weighted toward the longer term.
Broadcom's recent quarterly results provide a mixed picture. In the fiscal third quarter ended August 2, revenue surged 86% year-over-year to $29.591 billion, with AI semiconductor revenue reaching $16.7 billion—a 221% increase from the prior year and 54% sequentially. AI semiconductors now account for 56.4% of total revenue, underscoring the company's rapid shift toward hardware.
However, non-GAAP gross margin dipped to 75.0% from 77.1% in the May quarter, reflecting the lower-margin nature of AI hardware. Despite this, operating leverage helped non-GAAP operating margin reach 67.9%, and free cash flow came in at $13.665 billion.
Looking ahead, Broadcom's fiscal fourth-quarter guidance calls for $34.8 billion in revenue, including $21.7 billion from AI semiconductors, with non-GAAP operating income near 66% of revenue. These figures will be a key test of the company's ability to execute on its AI roadmap.
The $490 price target hinges on three critical numbers: the $21.7 billion AI guide for the current quarter, the 66% operating margin target, and the $115 billion fiscal 2027 AI revenue outlook. A clean performance on all three fronts would bolster the case for the upgrade, while any shortfall could expose the optimism embedded in the 2028 estimates.
With U.S. markets closed Monday for Labor Day, investors will have to wait until Tuesday to react to the upgrade. Broadcom's fourth-quarter report will provide the first real check on these ambitious projections.
