Goldman's AI Bet: Broadcom's Surge Challenges Nvidia's Dominance

Broadcom (AVGO) shares surged 11% in early November as Goldman Sachs upgraded its price target to $435 from $380, citing robust demand for the chipmaker's AI infrastructure and partnerships with Google and OpenAI. Analyst James Schneider, who maintains a Buy rating, highlighted sustained AI strength in Q4 and expects fiscal 2026 AI revenue to exceed $45.4 billion, a 128% year-over-year increase according to CNBC. The upgrade follows Google's launch of its Gemini 3 AI model, which relies on Broadcom-designed tensor processing units (TPUs), and reports of Meta considering TPUs for its data centers. These developments underscore Broadcom's growing role in the AI semiconductor market, where it competes with industry leader Nvidia (NVDA), which currently holds an 85% market share according to Seeking Alpha.

Goldman Sachs emphasized three key factors likely to drive Broadcom's stock performance on its December 12 earnings report. First, the company's fiscal 2026 AI revenue guidance is expected to surpass 100% growth, driven by Google's expanding TPU deployments and OpenAI's multi-year partnership. Second, investors will scrutinize contributions from Google and OpenAI to Broadcom's revenue, with the firm projecting Google's incremental spending could accelerate as it transitions from cloud-based to on-premise TPU installations. Third, gross margin trends will be in focus, as Broadcom's custom XPU business-accounting for 65% of AI-related sales-grows rapidly but faces near-term margin dilution due to high capital expenditures.

Broader market dynamics further support optimism. Mizuho analysts noted that Meta's potential $billions-worth investment in TPUs for 2027 could boost Broadcom's ASIC business, while Bank of America reiterated its Buy ratings on AVGO, NVDA, and AMD, citing an expanding $1.2 trillion AI data center market by 2030. Despite Nvidia's dominance, Broadcom's custom chips are gaining traction as hyperscalers like Google and Meta diversify their AI infrastructure. This trend is amplified by Broadcom's networking expertise, including its Tomahawk Ultra switches, which enable large-scale AI clusters, and VMware's software division contributed $6.8 billion in Q3 revenue.

However, risks remain. Analysts caution that Broadcom's revenue is concentrated among a few hyperscalers, and competition from Nvidia's Blackwell pipeline-sold out through 2026-could limit market share gains. Additionally, the stock's lofty valuation, trading at over 60 times trailing earnings, leaves it vulnerable to market corrections or AI spending slowdowns. Despite these concerns, Goldman Sachs and other firms project AI semiconductor sales could reach $100 billion by 2027, with Broadcom's market share potentially doubling to 20% according to Seeking Alpha.