Broadcom (NASDAQ:AVGO) has drawn significant market attention in 2026 for its custom AI chips. But the company’s August 6 announcement of new VMware vDefend and Avi Load Balancer capabilities is a reminder that its infrastructure software business, the one built to throw off steady, high-margin cash, is still evolving too. With the stock sitting roughly 20% below the all-time high it set at the end of May, investors are left weighing a fast-growing chip story against a market that has already pulled back once this year.
Bull Case: A Business Firing On Two Engines
The custom chip pipeline remains the headline growth driver. Chief Executive Hock Tan has told investors Broadcom’s AI semiconductor business will top $100 billion in revenue in 2027, a jump from the $10.8 billion it generated in the second quarter alone, up 143% year over year. Alphabet Inc. (NASDAQ:GOOGL) is currently the primary buyer of those chips. Still, Meta Platforms (NASDAQ:META) and other major clients are expected to place larger orders once 2027 arrives, and Broadcom has already guided for its AI chip business to grow more than 200% in the current quarter. Total company revenue rose 48% year over year to $22.2 billion in the second quarter, adjusted earnings per share climbed 54% to $2.44, and free cash flow reached $10.3 billion, up 60%.
The August 6 vDefend and Avi Load Balancer update shows the software side isn’t standing still either. The new releases, vDefend SSP 5.2, vDefend 9.1.1, Avi Load Balancer 32.1.4, and the vACT 3.0 migration tool, add native API protection, on-premises malware sandboxing, and full air-gapped support, while substantially boosting performance. Distributed Firewall throughput can now reach up to 75Gbps per 100G NIC server, a 241% increase, scaling to 75Tbps across a VMware Cloud Foundation instance, and Avi Load Balancer throughput per controller can climb to 12.25Tbps. A new two-node deployment model also cuts the hardware needed to run vDefend by as much as 33%. Broadcom is pitching this as a response to AI-fueled cyberattacks, giving enterprises a reason to expand their VMware footprint even as chip demand grabs the spotlight.
Bear Case: Concentration And A Cautious Market
The flip side of Broadcom’s chip success is how few customers it depends on. Alphabet and Meta account for the bulk of custom silicon demand today, and while both have signed long-term agreements, Meta’s running through 2029 and Alphabet’s through 2031, any disruption to those relationships would ripple through the stock quickly. That risk helps explain why shares fell sharply after Broadcom’s last earnings report despite results and guidance that pointed to accelerating AI chip sales. Valuation debates hinge heavily on which year of earnings investors use and how much multiple compression they expect once growth normalizes, with estimates for where the stock could trade in coming years varying by billions of dollars depending on small changes in assumptions.
