mstack

AVGO

5 min read

AVGO — Broadcom

TL;DR

Broadcom sits at two of the most value-dense layers in the AI buildout: custom XPUs (Google TPU, Meta MTIA) and the optical interconnect stack (EMLs + CW lasers + DSPs + Tomahawk switches). The custom-silicon business is accelerating — Anthropic’s 400k TPUv7 Ironwood deal ($10B, direct from Broadcom) confirms AVGO as a merchant AI ASIC vendor, not just a supplier-to-Google.1 The laser and DSP business is “going nuts” (CEO Hock Tan on 1.6T DSP demand) and is the most complete photonics-plus-silicon stack in the industry — but it’s buried inside the networking segment with no separate revenue disclosure.2

Business

Semiconductor and infrastructure software company with four primary AI-relevant businesses: (1) Custom XPUs — design partner for Google TPU, Meta MTIA (Zion/MTIA), and other hyperscaler ASICs; (2) Networking silicon — Tomahawk Ethernet switch ASICs, Jericho routers, 1.6T DSPs for optical scale-out, leading market share; (3) Photonics — primary 200G EML supplier for Nvidia 1.6T transceivers, plus VCSELs and CW lasers; owns former Bell Labs InP fab in Breinigsville, PA; and (4) VMware — enterprise virtualization software acquired 2023, high-margin recurring software revenue. Networking segment carries highest margins outside software.2

Thesis

  • Custom XPU acceleration — merchant AI silicon. Broadcom built Google’s TPU line (v6, v7 Ironwood) and Meta’s MTIA ASICs. Anthropic signed a deal for 400k TPUv7 Ironwood units with Broadcom selling the systems directly (not through Google) — Broadcom was the 4th external customer named on their earnings call. Total deal value estimated at ~$10B for the direct-sale tranche alone. This validates Broadcom as a de facto merchant AI ASIC vendor.1
  • Most complete optical stack — hidden in networking. Broadcom makes EMLs, VCSELs, and CW lasers in-house, pairs them with its own DSPs (market leader in 1.6T DSPs) and Tomahawk/Jericho switch silicon — arguably the most integrated photonics-plus-networking stack in the industry. EML capacity ramping 25% YoY (40M units 2025 → 50M in 2026); CW laser capacity more than doubling (mid-teens millions → ~30M). The 100G→200G EML mix shift roughly doubles ASP per laser. None of this revenue is broken out.2
  • CPO long-game. CEO Hock Tan says CPO is “not anytime soon” for the external market, but Broadcom is building CPO technology (laser + DSP + switch on-package) and presented CPO components at ISSCC 2026 alongside Nvidia. The Nvidia-Broadcom CPO collaboration suggests Broadcom is the likely silicon photonics and DSP partner for Nvidia’s Feynman NVL1152 CPO system.3
  • 1.6T DSP demand gating the optics cycle. Hock Tan Q4 FY2025: “demand for our 1.6 Tb/s DSPs for scale-out is very, very strong… demand for optical components like lasers, PIN diodes, just going nuts.” DSP is the gating component for scale-out optical links; Broadcom holds market leadership in 1.6T DSPs.2

Risks

  • Hyperscaler in-sourcing. Google, Amazon, and Meta are all incrementally internalizing chip design. Google’s TPU design team is growing independently; if Google vertically integrates at the XPU level, Broadcom loses its largest custom-silicon customer. Meta is more nascent on this front.
  • Photonics revenue opacity. Photonics is embedded in the networking segment with no disclosure. Investors can’t model the mix shift or margin uplift from EML/CW laser ASP increases — making AVGO’s optical story harder to own purely on that thesis.2
  • COHR/LITE 6-inch InP cost pressure. Coherent’s 6-inch InP ramp targets ~half the cost vs. 3-inch. Broadcom is believed to be on 3-4 inch InP; if 6-inch yields at Coherent hold, Broadcom faces laser cost headwinds.4
  • VMware execution risk. The $69B VMware acquisition (2023) requires integration and customer retention in a competitive virtualization market. Any churn or pricing pressure affects the software margin profile.

Recent catalysts

  • 2026-04-15 — ISSCC 2026: Broadcom and Nvidia jointly presented CPO components — confirms Broadcom as the optical integration partner for Nvidia’s CPO roadmap.3
  • 2026-03-03 — Chipstrat: Broadcom laser business revealed — primary 200G EML supplier for Nvidia 1.6T transceivers; 25% EML capacity growth YoY; networking segment is highest margin outside software.2
  • 2025-11-28 — TPUv7: Anthropic 400k Ironwood deal ($10B direct from Broadcom), AVGO named as 4th external customer; Google commits to merchant TPU sales as competitive counterpressure to Nvidia.1

Second-order reads

  • 2026-04-01 — Chipstrat, Coherent’s Vertical Integration — Coherent 6-inch InP ramp positions it as lower-cost laser competitor vs. AVGO and LITE → watch for AVGO photonics margin compression as Coherent scales.
  • 2026-03-23 — Chipstrat, Multi-Silicon Era — Broadcom XPUs (Google TPU, MTIA) are displacing Nvidia at frontier labs for specific workloads → two-sided thesis: positive for AVGO custom silicon, negative second-order for NVDA share.
  • 2025-11-28 — SemiAnalysis, TPUv7 — Anthropic/Meta TPU adoption + OpenAI’s TPU-threat extracted 30% Nvidia discount → structural shift in frontier-lab silicon mix; AVGO XPU wins while NVDA faces pricing pressure at top end.

Valuation & positioning

Pending. Photonics revenue is not separately disclosed, making sum-of-parts analysis difficult. Street values AVGO primarily on XPU growth trajectory and VMware recurring software. Chipstrat notes AVGO’s laser business could trade at Lumentum-like multiples (~60× forward earnings) if broken out — currently buried in a $1.5T market cap conglomerate.2

Sources

NVDA — Broadcom CPO partner; AVGO XPUs compete with NVDA for frontier-lab compute share COHR — competes in EMLs, VCSELs, CW lasers; COHR is DSP-agnostic, AVGO bundles DSP LITE — competes in EMLs, CW lasers; three-way optical supercycle competition MRVL — MRVL also does custom ASIC (Trainium2 design partner before losing Trn3 to Alchip) AMD — AVGO XPUs and AMD Instinct compete for AI training workloads FN — transceiver contract manufacturer; downstream of AVGO’s 1.6T DSP + EML output AAOI MTSI — optics pull-through; compete with AVGO at component level

Footnotes

  1. SemiAnalysis — TPUv7: Google Takes a Swing at the King — 2025-11-28 ↩ ↩2 ↩3

  2. Chipstrat — Broadcom Makes Lasers? — 2026-03-03 ↩ ↩2 ↩3 ↩4 ↩5 ↩6 ↩7

  3. SemiAnalysis — ISSCC 2026: Nvidia and Broadcom CPO — 2026-04-15 ↩ ↩2

  4. Chipstrat — Coherent’s Vertical Integration Strategy — 2026-04-01 ↩

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