Shares of Broadcom (NASDAQ:AVGO) jumped about 12% premarket on Friday after fiscal third quarter results beat estimates, and the company revealed a new customer, which saw bullish reactions from analysts.
Jefferies kept its Buy rating on Broadcom and raised the price target on the stock to $350 from $315.
Analysts led by Blayne Curtis said the company announced a fourth AI Application-Specific Integrated Circuit, or ASIC, customer, which is expected to ramp quickly with a $10B order for the second half of fiscal 2026 alone. The expectation is for fiscal 2026 to now materially outgrow fiscal 2025 (versus prior similar), with fiscal 2027 expected to outgrow fiscal 2026, the analysts added.
“The new customer (OpenAI) provides an immediate step function in revenue with the $10B order just the beginning of the engagement,” said the analysts.
Curtis and his team noted that the fourth customer comes even faster than expected and ramps up quickly with a $10B ASIC order focused on inference for the second half of fiscal 2026 (just the first order for the platform), providing another step function higher in AI revenue in fiscal 2026 ($10B on top of the 60% growth already expected). High-level expectations continue to move higher with total backlog up to $110B and fiscal 2026 AI revenue now expected to materially outgrow fiscal 2025, with further acceleration into fiscal 2027. The total list of customers/prospects remains the same, but this is a significant proof point for ASICs.
On the gross margin side, Broadcom indicated ASIC gross margins will be lower (likely in the 50s), but gross profit is moving higher, the analysts added.
“Overall, we expect the size and speed of the 4th customer will add legitimacy to the ability to capture the remaining ASIC opportunity, making the F27 a reality sooner and putting some pressure on the GPU stories,” said Curtis and his team.
Morgan Stanley maintained its Overweight rating and increased the price target on the stock to $382 from $357.
Analysts led by Joseph Moore said the July quarter was basically in line on all metrics. October revenues were guided 2% to 3% ahead of consensus, with AI closer to 10% ahead and softness in legacy semiconductors.
“Headline grabber will be the addition of a 4th customer for AI ASIC processors, reported in the press as Open AI; driving a surprising $10 bn of 2h26 revenue,” said Moore and his team.
The analysts added that despite some risks around continuing to elevate longer term expectations, there is quite a bit of growth potential here, and they have stayed with an Overweight rating.
Wells Fargo kept its Equal Weight rating on Broadcom’s shares but raised the price target to $345 from $255.
“AVGO delivered another solid beat-and-raise w/[with] continued custom AI XPU momentum – most notably highlighting $10B+ order from new (4th) customer for inference-focused XPU; accelerating AI growth in FY26 and again in FY27,” said analysts led by Aaron Rakers.
Related stocks: Nvidia (NVDA) and Intel (INTC) dipped about 1% each, Advanced Micro Devices (AMD) fell around 2%, and Qualcomm (QCOM) was largely flat premarket on Friday.