Alphabet's (GOOGL) (GOOG) Google is gaining significant traction in the AI chip market with its custom Tensor Processing Units (TPUs), but Morgan Stanley analysts believe Broadcom (AVGO) remains an even stronger investment opportunity.
The investment firm raised its price target on Broadcom to $443, pointing to Google's TPU success as validation of broader demand for custom AI chips that Broadcom helps design and manufacture. This connection between the two companies has turned Broadcom into a derivative play on Google's AI momentum, with the stock rallying 11% in a single trading session last month.
Broadcom is a major supplier of application-specific integrated circuits to hyperscalers, and it helps design and manufacture Google's TPUs. These custom chips have been in development since 2016 and are now in their seventh generation with the newly available Ironwood model.
Google claims Ironwood is more than four times faster than its predecessor and nearly 30 times more power efficient than the original 2018 version. Major customer wins include Anthropic, which plans to deploy up to one million TPUs to run its Claude model.
Morgan Stanley analyst Joseph Moore highlighted that Google's tensor processor supply chain, designed and sold by Broadcom, is being revised higher across multiple sources, including analog companies, memory suppliers, and manufacturing partners.
The growing enthusiasm around Google's Gemini 3 AI model has only amplified optimism about TPU demand. Wall Street analysts across the board are taking notice, with several firms lifting price targets on Broadcom in recent weeks. Melius Research raised its target to $475, while Jefferies set the Street's highest target at $480, both suggesting potential upside of more than 40%.
The timing appears favorable, as ASICs are at an inflection point. Google stated that its token processing volumes have risen from 480 trillion in April to 1,300 trillion in October. This trajectory should accelerate further as multimodal AI models require higher compute power, which will act as a tailwind for Broadcom’s ASIC business.
The Bull Case for AVGO Stock
Recently, Broadcom CEO Hock Tan laid out an ambitious vision for the company's AI business. Tan revealed that his 2030 compensation incentives are tied to achieving AI revenue of more than $120 billion, up from $20 billion that Broadcom generated in fiscal 2025.
Broadcom is laser-focused on a narrow segment of seven customers who are building large language models (LLMs) and racing toward artificial general intelligence. These players include major hyperscalers and what Tan called AI super startups or labs. Broadcom previously guided for 60% AI revenue growth in fiscal 2026, but Tan indicated that growth is now accelerating materially beyond that rate. The company recently converted another major customer focused on inference workloads, adding to its roster of custom silicon clients.
Tan emphasized that Broadcom's competitive advantage extends far beyond just designing powerful AI accelerators. As AI clusters scale to hundreds of thousands of accelerators, the challenge shifts from individual chip performance to efficiently connecting them. Tan stressed that in generative AI, the network becomes the computer rather than any single chip.
The semiconductor giant is driving toward optical interconnects capable of 100 terabits per second bandwidth, moving beyond the 28-terabit copper solutions deployed today. This transition to silicon photonics will enable connecting 512 to 1,024 AI accelerators directly to each other within a rack, dramatically improving training convergence times. Broadcom expects this shift to happen in 2026 and 2027 as customers deploy larger clusters for increasingly complex models.
On the Ethernet versus proprietary interconnect debate, Tan sees a clear path toward Ethernet adoption. As hyperscalers develop custom accelerators and disaggregate their infrastructure, Ethernet will naturally become the standard over the next five years. This disaggregation mirrors what happened in cloud computing, where separating hardware, software, and networking components led to better optimization and performance.
Is AVGO Stock Still Undervalued?
Analysts tracking Broadcom stock forecast revenue to increase from $63.3 billion in fiscal 2025 (ended in October) to $177 billion in fiscal 2030. In this period, adjusted earnings are forecast to expand from $6.75 per share to $22.20 per share.
If AVGO stock is priced at 35x forward earnings, which is lower than its current multiple of 45x, it should trade around $777 in late 2029, indicating an upside potential of over 100% from current levels.
Out of the 40 analysts covering AVGO stock, 34 recommend “Strong Buy,” three recommend “Moderate Buy,” and three recommend “Hold.” The average Broadcom stock price target is $409.84, above the current price of $379.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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