Broadcom (AVGO): AI Networking and Custom Chips Could Drive the Next Leg Higher
Broadcom (AVGO) has gained just 6% so far in 2026, a surprisingly modest performance considering how quickly its artificial intelligence business is growing. We think that could be about to change.
The next major catalyst arrives very soon. Broadcom is scheduled to report its fiscal 2026 third-quarter results after the market closes on September 2, and there are several reasons to believe the company could deliver strong results and guidance.
Broadcom expects fiscal Q3 revenue of $29.4 billion, which would represent an 84% increase from a year ago. Earnings are also expected to surge, with Wall Street looking for earnings per share of $3.24, up 92%.
Those are already impressive numbers, but two areas of Broadcom’s AI business could provide additional upside.
The first is networking. Demand for the infrastructure needed to connect increasingly large AI systems is growing rapidly, and Broadcom sells several important optical networking components, including fast-growing co-packaged optics products.
The potential size of this market is significant. Goldman Sachs estimates that optical networking revenue could climb from $15 billion in 2026 to $154 billion in 2028.
Broadcom is already generating substantial revenue from this area. Management expects the company to produce $56 billion in AI chip revenue in 2026. Networking products are expected to account for roughly 30% of that total, which would put networking revenue at around $17 billion this year.
That gives Broadcom considerable exposure to a market that could expand more than tenfold in just two years.
The second major opportunity is custom AI processors.
OpenAI recently announced its first custom AI chip, Jalapeño, which was developed with Broadcom and is expected to begin deployment in OpenAI’s AI infrastructure this year. More importantly for Broadcom’s longer-term growth, OpenAI is already working on the next two generations of its in-house processor.
That suggests Broadcom’s relationship with OpenAI could extend well beyond a single chip generation. Combined with the company’s networking business, it gives Broadcom two powerful ways to participate in continued AI infrastructure investment.
What makes the opportunity particularly interesting right now is the valuation.
Broadcom trades around $369 per share and at just 19 times forward earnings. That’s below the Nasdaq-100’s forward multiple of 24, despite Broadcom being expected to grow earnings by roughly 70% in the current fiscal year and another 70% in the following year.
That combination of rapid earnings growth and a below-market valuation is difficult to ignore.
The stock also remains well below its 52-week high of $495. Broadcom’s muted 6% gain so far this year means much of the company’s expected AI growth has yet to translate into comparable stock-price performance.
The September 2 earnings report could be an important turning point. Stronger-than-expected networking and custom AI chip demand could lead to an earnings beat, stronger guidance or both.
With AI revenue expected to reach $56 billion this year, exposure to a rapidly expanding optical networking market, a multigenerational custom-chip relationship with OpenAI and a forward valuation of only 19 times earnings, we believe Broadcom offers an unusually attractive combination of growth and value ahead of its fiscal Q3 report.
