Hock Tan Just Guided Broadcom's AI Revenue to Reach $230 Billion by 2028. Should You Believe Him?

Broadcom (NASDAQ: AVGO) CEO Hock Tan is no stranger to making bold claims, but he has a good track record of being right. His latest projection is particularly audacious: Broadcom will bring in $230 billion in annual AI semiconductor revenue in its fiscal 2028. To hit that would require massive growth from now until then, but can investors trust that forecast?

(Hint: I think they can.)

Image source: The Motley Fool.

Broadcom's custom AI chips are taking off

Most of the AI models and applications that have been developed to date have been created and trained on servers built around graphics processing units (GPUs). While these are impressive computing units, they are designed to be general-purpose parallel processors, capable of being programmed for a wide array of calculation-heavy computing tasks.

However, when workloads are predictable enough, there are cost and performance gains to be had by running them on specialized narrow-purpose computing units -- application-specific integrated circuits (ASICs).

That's why several major AI companies are using Broadcom's custom AI chip design services to create computing units that are tailored to their workloads. Among Broadcom's ASIC clients are major AI companies like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), OpenAI, and Anthropic.

As these companies and others look to optimize their computing power, they plan to spend a lot more on their own custom AI chips in the future. Broadcom is seeing this demand, which is why it issued that impressive guidance for $230 billion in AI semiconductor revenue by 2028. For reference, its AI semiconductor revenue was $16.7 billion in the third quarter. Annualized, that's just over $65 billion, so if Broadcom hits its estimate, that would indicate its AI revenue more than tripling in just two years.

Can investors believe that?

Tan's previous guidance was an underestimate

In late 2024, Tan predicted that Broadcom's AI revenues would land in the $60 billion to $90 billion range in 2027. While that was regarded as a long-shot forecast at the time, it has turned out to be a major underestimate. The company now projects $115 billion in AI revenue in 2027.

Forecasting is hard, and investors should be thrilled with companies that can underpromise and overdeliver.

Another reason to trust Broadcom in this case is the information given alongside the projection. Tan noted that the company has secured the supply chain necessary to provide components to meet its demand, which is a huge deal. This gives Broadcom the ability to back up what it's said, and I think that gives investors everything they need to be able to trust the projection.

So, where might the stock go from here? Broadcom doesn't solely design AISCs, although that business has become a major part of the company. For this fiscal year, Wall Street analysts estimate Broadcom's total revenue will be $106 billion. If $65 billion of that comes from AI sources (as Broadcom projects), that leaves $41 billion in non-AI revenue.

AVGO Revenue (TTM) data by YCharts.

If those other parts of the business grow at a 10% pace through 2028 and the AI chip segment hits its guidance target of $230 billion in sales that year, that would give the company total revenue of about $280 billion in 2028. If Broadcom could reach a 50% profit margin by 2028, that would convert $140 billion of that revenue into profits.

If we assign a 30 times earnings valuation to that, it yields a company worth $4.2 trillion -- around 150% more than the current market cap.

Investors have a prediction from a CEO who has previously made an ambitious forecast that the company outperformed, combined with potential upside of 150% in just two years. That makes Broadcom a no-brainer buy, and I think investors should be racing to scoop up shares.

Keithen Drury has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.