Why Wells Fargo Just Turned More Bullish on Broadcom (AVGO)

Core Viewpoint - Broadcom Inc. is being closely monitored by analysts as a significant player in the AI sector, with recent stock pullbacks seen as a favorable re-entry point for investment [1] Group 1: Analyst Upgrades and Price Targets - Wells Fargo analyst Aaron Rakers raised Broadcom's price target from $410 to $430 and upgraded the stock rating from Equal-weight to Overweight, reflecting confidence in the company's long-term AI-driven revenue and margin sustainability [1] - The firm has revised its revenue estimates for 2026 and 2027, increasing projections from $97.0 billion / $103.6 billion and $130.5 billion / $139.0 billion to $108.4 billion / $115.3 billion, respectively [2] Group 2: AI Revenue Projections - Broadcom's AI semiconductor revenue is expected to reach $52.6 billion in 2026, representing a 116% year-over-year increase, and $93.4 billion in 2027, reflecting a 78% year-over-year increase [2] - AI Compute revenue is projected at $36.6 billion (+131% y/y) for 2026 and $66.2 billion (+81% y/y) for 2027, while AI Networking revenue is expected to be $16.1 billion (+87% y/y) and $27.2 billion (+69% y/y) for the same years [3] Group 3: Non-AI Business and Margins - The non-AI chip business is expected to remain flat, but Broadcom's software business is strong, with high margins anticipated, alleviating concerns about declining profitability [3] - The company maintains a flat revenue estimate for non-AI semiconductor revenue for 2026 and 2027, with Infrastructure Software revenue expected to grow in line with company guidance of low double-digit growth [4] - Broadcom's Infrastructure Software backlog increased to approximately $73 billion at the end of FY25, up from $49 billion at the end of FY24 [4] - Initial estimates suggest a decline in semiconductor gross margin percentage to around 65% from 68.2% in FY25, but concerns about a significant drop below 60% are considered overstated [4]