Goldman Sachs comments on Broadcom’s financial report: Margin concerns alleviated, explosive guidance signals a major performance upgrade!

```

Goldman Sachs believes that Broadcom's better-than-expected performance guidance, improvements in gross margin, key production component lock-in, and the company's latest statements about new custom chip customers are leading the market to re-evaluate its valuation.

On March 4, Goldman Sachs analysts James Schneider Ph.D. and others stated in a report that the company's FY27 AI semiconductor revenue outlook significantly exceeds $100 billion, and combined with the raised quarterly guidance, the stock price is expected to rise noticeably.

Broadcom management indicated that they have secured the supply of key components (memory, lasers, packaging) necessary to support their revenue forecast until FY28, and due to economies of scale and yield improvements, the expected dilution of margins from rack-level shipments in the coming quarters will no longer occur.

Based on this, Goldman Sachs maintains a buy rating and places Broadcom on its conviction list, raising the 12-month target price from $450 to $480, while sharply increasing FY26/27/28 AI semiconductor revenue forecasts to $60 billion/$130 billion/$171 billion.

Guidance vastly beats expectations, Goldman Sachs raises revenue forecasts accordingly

Goldman Sachs believes this quarter's performance largely aligns with market expectations, but 2Q guidance is notably higher than consensus. The company expects 2Q revenue of $22 billion, and AI semiconductors of $10.7 billion. Goldman Sachs says this reflects accelerating demand and increased visibility of backlog orders.

Management set a higher mid-term target, stating that with up to 10GW data center deployments, FY27 AI semiconductor revenue could significantly exceed $100 billion, and FY28 is also expected to grow. Goldman Sachs calls this a shift in "expectation anchors upward."

Under the above assumptions, Goldman Sachs increases AI semiconductor revenue forecasts for FY26, FY27, FY28 to approximately $60 billion, $130 billion, $170 billion, emphasizing that this is a substantial upward revision of investor models.

Gross margin concerns resolved, supply chain lock-in as a key signal

Gross margin worries stem from potential material shortages and rising costs. Goldman Sachs states that Broadcom has locked in supplies of crucial components—memory, lasers, packaging— enough to support its revenue forecast through FY28, thus easing downward pressure on gross margin.

The company has also withdrawn its previous hint that "rack-level system shipments would dilute profits," believing that larger-scale production and yield improvements will absorb the impact. Goldman Sachs expects this will help Broadcom maintain its current AI product profit structure in the mid-term.

Improved customer transparency, new projects entering ramp-up phase

Goldman Sachs believes another key incremental factor is increased transparency regarding customers. Management newly disclosed collaborations with Meta, Anthropic, OpenAI, etc., and currently six custom chip projects are expected to enter the volume ramp phase.

The company stated that cooperation with Google's seventh generation TPU remains strong with limited mid-term COT impact, Meta’s custom XPU is expected to deliver multiple GW in FY27, Anthropic plans to deploy 3GW in FY27, OpenAI aims for 1GW in FY27.

Major performance upgrades reflected in valuation, Goldman raises target price and earnings assumptions

Accordingly, Goldman Sachs "rewrites" its earnings path, raising normalized EPS estimates from $12 to $16, arrives at a $480 target price using a 30x P/E ratio, and states Broadcom’s AI network and custom silicon cost reduction pace matches Nvidia.

On the product side, Goldman Sachs is optimistic about the continued ramp-up of Ethernet and switch chips; Tomahawk 6 is leading, and Tomahawk 7 is expected to grow strongly. The firm expects network revenue to account for 40% of AI semiconductor in 2Q and to remain at 33%-40% thereafter.

Goldman Sachs also highlights risks, including slowing AI infrastructure investment, loss of custom computing share, delayed inventory digestion in non-AI business, and intensifying competition in VMware.

Risk Disclaimer & TermsThe market carries risks; investment requires caution. This article does not constitute personal investment advice and does not take into account any user’s specific investment goals, financial conditions, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular situation. Investing based on this article is at your own risk. ```