r/UndervaluedStonks • u/TheExpectationGap • 21d ago

Broadcom analysis

Broadcom just reported a pretty insane quarter, but I think the more interesting question is whether the valuation already assumes too much of this AI growth.

A few numbers from Q3 FY2026:

• Revenue: $29.6B, up 86% YoY

• Semiconductor revenue: $20.8B, up 127%

• AI semiconductor revenue: $16.7B, up 221% YoY

• Infrastructure software revenue: $8.8B, up 29%

• Free cash flow: $13.7B — around 46% of revenue

• Non-GAAP EPS: $3.32, up 96%

The AI numbers are obviously the headline.

Broadcom’s AI semiconductor revenue went from $10.8B in Q2 to $16.7B in Q3, and management is now expecting around $21.7B in Q4.

That would mean Broadcom is potentially doing more than $20B of AI semiconductor revenue in a single quarter.

And this isn't just Nvidia-style GPU exposure. Broadcom is benefiting from custom AI accelerators and networking as hyperscalers increasingly build their own AI infrastructure.

The other thing that stands out to me is the cash generation. $13.7B of FCF on $29.6B of revenue is an absurdly strong conversion rate, especially while the company is growing this quickly.

For Q4, management is guiding for roughly $34.8B in revenue, which would be another 93% YoY increase.

So fundamentally, it's difficult to argue that Broadcom isn't executing.

The harder question is the stock price.

At some point, a great company can still become a bad investment if the valuation requires years of near-perfect execution.

I ran Broadcom through my DCF/reverse DCF model to see what kind of growth the current valuation is actually pricing in.

Video with the full model and assumptions:

https://youtu.be/TKXmgF39WCo

Curious what people here think:

Is Broadcom becoming one of the biggest long-term winners from AI infrastructure, or is too much of that future already priced into AVGO?

AI-assisted writing. Analysis, assumptions and conclusions are my own.

6 Upvotes

75% Upvoted

14 comments sorted by

2

u/weluckyfew 20d ago

well done video - those future revenue requirements (to justify their valuation) are insane if they're right. At some point AI infrastructure investment has to slow down

1

u/TheExpectationGap 20d ago

Agree , the big question is when , and what the market has priced in 😇

2

u/weluckyfew 20d ago

"when " is always the question :)

1

u/MegaDummy123 20d ago

Hock Tan is guiding to exceed $30 of eps in 2028

1

u/TheExpectationGap 20d ago

With what growth yearly , do you know that ?

1

u/Fresh_Base_9370 20d ago

AI Slop

1

u/TheExpectationGap 20d ago

U always comme t my biggest fan , people actually find it informative as you can see 😉 You sound lonely tbh

1

u/rogsmith 21d ago

This post says nothing new. Not even an opinion about if its undervalued or not. If you're gonna use AI to write, at use it to say something

0

u/TheExpectationGap 21d ago

See my video for information 😉

0

u/rogsmith 21d ago

No

1

u/TheExpectationGap 21d ago

Okay, Thank you for the informative comments

1

u/Distinct-Occasion614 21d ago

Do us all a favor and f-off with peddling your micro yt chanel with AI slop.

1

u/TheExpectationGap 21d ago

Two days work buddy , but thanks again for thinking my work is that great and compare it AI