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Investing.com - Melius Research reiterated its Buy rating and $415.00 price target on Broadcom Limited (NASDAQ:AVGO) on Monday, highlighting significant revenue potential from the company’s recently announced deal with OpenAI. The semiconductor giant, currently valued at $1.69 trillion, enjoys strong analyst support, with InvestingPro data showing 26 analysts recently revising earnings estimates upward.
The research firm clarified that OpenAI is not "Customer 4" previously referenced by Broadcom CEO Hock Tan, as OpenAI has not yet submitted a purchase order. Melius believes Customer 4 is likely another large language model company, possibly Anthropic. With impressive gross profit margins of 77.19% and strong revenue growth of 28.01% in the last twelve months, Broadcom appears well-positioned to capitalize on these opportunities.
Melius noted that the OpenAI agreement is incremental to Tan’s previous projections of doubling AI revenue in fiscal 2026 and doubling again in fiscal 2027, with OpenAI revenue expected to materialize between the second half of 2026 and 2029.
The deal for computing racks will include all Broadcom networking components, potentially generating approximately $20 billion in revenue per gigawatt. With OpenAI committing to 10 gigawatts, this could represent at least $40 billion in annual AI revenue upside starting in the second half of fiscal 2026.
While acknowledging the deal might be margin dilutive, Melius emphasized that the potential revenue and earnings upside outweighs margin concerns, potentially adding approximately $3 per share to their fiscal 2027 EPS estimate of $13.00, even with lower operating margins. For deeper insights into Broadcom’s financial health and growth prospects, including over 20 additional key metrics and ProTips, visit InvestingPro, where you’ll find comprehensive analysis in our exclusive Pro Research Report.
In other recent news, Broadcom Inc. has entered a multi-year collaboration with OpenAI to develop and deploy 10 gigawatts of custom AI accelerators. This significant project is slated to begin deployments in the second half of 2026 and complete by the end of 2029. In the realm of financial analysis, Aletheia Capital initiated coverage on Broadcom with a Buy rating and a $400 price target, citing expectations of a substantial increase in AI revenue over the next few years. Similarly, Bernstein SocGen Group maintained an Outperform rating and a $400 price target, emphasizing strong compute demand and Broadcom’s growth trajectory in AI.
Meanwhile, KeyBanc reiterated an Overweight rating with a $420 price target, anticipating higher results for Broadcom’s upcoming fiscal fourth-quarter earnings report due to robust AI demand. In competitive developments, Cisco Systems introduced new chip technology aimed at AI data centers, presenting a challenge to Broadcom in the AI networking market. Cisco’s Silicon One P200 chip and 8223 routing systems are designed for faster data transfers, potentially impacting Broadcom’s market position. These developments highlight Broadcom’s active role in the AI sector and the competitive dynamics it faces.
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