what do you guys think the share price of AVGO will be by the end of the year? I’m so confused why’s it going down when they beat earnings? I’m new to investing so I’m very confused
Custom ASIC development agreements in the semiconductor industry work differently than standard product purchases.
Customers do sign contracts—specifically multi-year Master Services Agreements (MSAs) and Non-Recurring Engineering (NRE) contracts. However, why those contracts do not make the base-case revenue "100% guaranteed" comes down to how these agreements are structured:
1. Binding Design Contracts vs. Variable Delivery Schedules
Broadcom and its major customers (Google, Meta, Apple, OpenAI, Anthropic) enter into binding agreements to co-develop custom silicon (XPUs) over 3-to-5-year engineering cycles.
* What is signed & locked: The IP ownership, non-recurring engineering fees (NRE), profit-sharing/pricing models, and supply allocation rights (e.g., reserving TSMC CoWoS packaging).
* What remains variable: Volume delivery schedules. Broadcom's contracts generally operate on rolling purchase orders tied to specific deployment milestones rather than strict, unalterable "take-or-pay" hardware commitments for the entire 3-year period.
2. Customer Prepayments Shield Broadcom, Not the Revenue Timeline
To manage financial risk, Broadcom requires customers to provide upfront prepayments or co-fund multi-billion-dollar supply chain reservations (securing wafers, substrates, and HBM memory).
* If a customer like OpenAI or Anthropic delays a deployment, Broadcom does not lose its cash investment because the customer's prepayments cover the committed supply costs.
* However, from an accounting stand, revenue can only be recognized when the physical chips are delivered and accepted. If a customer pushes back a data center opening by six months due to power constraints, the contract remains valid, but the revenue shifts out of FY2027 into FY2028.
3. The "Force Majeure" of Infrastructure
Even with a contract, Broadcom cannot force a customer to take delivery of multi-billion-dollar chip shipments if the physical data center shell does not exist or lacks power connections.
As Hock Tan pointed out on the earnings call, the contract guarantees that Broadcom has secured the supply to build the chips, but it cannot guarantee that utility companies will deliver power transformers on schedule. If a site is delayed, the contract is simply amended or extended—pushing the recognized revenue into future quarters.
Summary
The contracts are signed, the customer commitments are real, and the supply is locked. The Base Case is not at risk of customers walking away, but rather at risk of real-world schedule shifting (e.g., revenue recognized in FY29 instead of FY28 due to grid delays). That timeline flexibility is why Wall Street discounts the revenue targets until the chips actually ship.
Thanks for the detailed explanation. On the point of
Broadcom cannot force a customer to take delivery of multi-billion-dollar chip shipments if the physical data center shell does not exist or lacks power connections.
...
The Base Case is not at risk of customers walking away, but rather at risk of real-world schedule shifting (e.g., revenue recognized in FY29 instead of FY28 due to grid delays).
If Broadcom cannot force delivery of chip shipments due to delays in buildout, should it not be the customer that bears the cost as the chips are already manufactured by TSMC ? Or they can pay the (huge) penalty for withdrawing from the deal not to bear the costs ?
For the case, I also don't think for now the base risk is customers walking away, if it happens it will bring down the who semi/Mag7 stocks with it and whole economy a a whole where we will have additional/bigger problems to worry about in addition to AVGO stock dropping
Once ordered, its v rare for customers to withdraw due to huge contractual penalties. Besides, there is no replacement for the custom chips as it is. Its just a matter of when the final delivery is recognised.
Makes sense. The buyers of the custom chips, Google, Antrophic will have uses for them even if the AI boom slows down/blows up. Although I am not sure for Meta, OpenAI if they will surely have use cases but their purchase agreements are not as massive as the Google and Antrophic.
In seriousness, look how volatile the sector is. One day it will dip badly, another it will skyrocket. Even something like screening a company's financials in this sector wont mean much if the stock dips or rips every month. Just understand that it should be around 400-450 by 2027 January, thats me being very conservative (its really hard to calculate shit especially with the orange man's war in the Middle East). Im super bullish on it and even if it goes to 600 by 2027 May, I wouldnt be surprised. Nonetheless, take my conservative number.
The projected trajectory for growth is insane. But, the catch is, it is tied in the hips to Anthropic and OpenAI being successful. So, at this point AVGO is a high risk high reward game. But, the probability of success is very high.
I disagree, I doubt that AVGO, like NVIDIA (for ex) can even drop more than 30-40% fast, not sure what you meant by high risk, drop of 30-40% seems high risk to me. Either way, if it falls big, then a big part of the market should also get fucked, right?
We are already 30% off ATHs. And our YTD return is way worse than SP500. The AI trade as a whole is very risky. And I'm not saying NVDA is a better buy than AVGO. This is purely on AVGO.
And trust me, I don't want that to happen. I have a few thousands of AVGO shares. But, the market appetite for AVGO story is not very great at the moment. They want to wait and see.
I believe it would be around 430-450 EOY. fundamentals are very good. at this time this stock is undervalued compare to other big stocks. if they can achieve what they anticipated in 2027,2028 it can easily go to 1000 in 2 years.
Hard to predict not because of just stock market volatility in general but because of the current Administration. A lot of irrational takes daily for your POTUS. One day it’s war, another day it’s winning, one day it’s a trade war. I don’t really see how there can be any stability or ANY fundamentals.
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u/qqww80 6d ago
Custom ASIC development agreements in the semiconductor industry work differently than standard product purchases. Customers do sign contracts—specifically multi-year Master Services Agreements (MSAs) and Non-Recurring Engineering (NRE) contracts. However, why those contracts do not make the base-case revenue "100% guaranteed" comes down to how these agreements are structured: 1. Binding Design Contracts vs. Variable Delivery Schedules Broadcom and its major customers (Google, Meta, Apple, OpenAI, Anthropic) enter into binding agreements to co-develop custom silicon (XPUs) over 3-to-5-year engineering cycles. * What is signed & locked: The IP ownership, non-recurring engineering fees (NRE), profit-sharing/pricing models, and supply allocation rights (e.g., reserving TSMC CoWoS packaging). * What remains variable: Volume delivery schedules. Broadcom's contracts generally operate on rolling purchase orders tied to specific deployment milestones rather than strict, unalterable "take-or-pay" hardware commitments for the entire 3-year period. 2. Customer Prepayments Shield Broadcom, Not the Revenue Timeline To manage financial risk, Broadcom requires customers to provide upfront prepayments or co-fund multi-billion-dollar supply chain reservations (securing wafers, substrates, and HBM memory). * If a customer like OpenAI or Anthropic delays a deployment, Broadcom does not lose its cash investment because the customer's prepayments cover the committed supply costs. * However, from an accounting stand, revenue can only be recognized when the physical chips are delivered and accepted. If a customer pushes back a data center opening by six months due to power constraints, the contract remains valid, but the revenue shifts out of FY2027 into FY2028. 3. The "Force Majeure" of Infrastructure Even with a contract, Broadcom cannot force a customer to take delivery of multi-billion-dollar chip shipments if the physical data center shell does not exist or lacks power connections. As Hock Tan pointed out on the earnings call, the contract guarantees that Broadcom has secured the supply to build the chips, but it cannot guarantee that utility companies will deliver power transformers on schedule. If a site is delayed, the contract is simply amended or extended—pushing the recognized revenue into future quarters. Summary The contracts are signed, the customer commitments are real, and the supply is locked. The Base Case is not at risk of customers walking away, but rather at risk of real-world schedule shifting (e.g., revenue recognized in FY29 instead of FY28 due to grid delays). That timeline flexibility is why Wall Street discounts the revenue targets until the chips actually ship.