One AI Stock is The Clear WInner as Yields Approach 5%

One AI Stock is The Clear WInner as Yields Approach 5%

Alex Sirois

Thu, September 10, 2026 at 5:10 PM GMT+3 5 min read

• AVGO -0.14%

Quick Read

• Broadcom (AVGO) AI semiconductor revenue surged to $16.7B in Q3, up 221% YoY, with management guiding $58B for FY26 and $230B by FY28.

• Broadcom's Jalapeno chip runs frontier AI workloads at half a GPU's cost, making it indispensable to hyperscalers as borrowing costs climb.

• Hock Tan targets $30+ EPS by FY28, nearly 5x today's level, while $24B in cash and strong free cash flow offset customer concentration risk.

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I keep buying Broadcom (NASDAQ:AVGO), and I am going to tell you exactly why the button gets pressed again every time the 10-year Treasury ticks higher.

The story I keep coming back to is simple. Hyperscalers are staring at borrowing costs that keep climbing, and Broadcom sells them the one thing that cuts their compute bill in half. When Google, Meta, OpenAI, and Anthropic need to squeeze more inference out of every dollar of debt they raise, they call Hock Tan. That is the core of the thesis, and every quarter the receipts get louder.

Yield Math That Changed My Mind

Yields are back near levels that used to send me straight to a bond ladder. The 10-year Treasury sits at 4.83% and the 30-year at 5.28%. Broadcom's annualized forward dividend of $2.60 against a $364.38 share price is a rounding error next to that. So why am I still buying? A Treasury pays me a coupon and nothing else. Broadcom pays me a rising coupon on top of an AI franchise that just posted Q3 revenue of $29.59B, up 85.5% YoY, with free cash flow of $13.67B, equal to 46% of revenue. That is one quarter.

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Cost Advantage Hyperscalers Cannot Ignore

Here is the part that keeps me committed. Management said Jalapeno, OpenAI's first-generation custom accelerator built by Broadcom, runs frontier workloads at half the cost of a GPU. Hock Tan put it plainly: "When you co-develop a chip that is optimized for your particular LLM workloads, you will outperform any GPU." As borrowing costs march higher, every hyperscaler on Earth is under pressure to reduce cost per inference. Broadcom's answer is a purpose-built XPU plus Tomahawk switching wrapped around it, and the company expects to hold $20 to $30 billion of content per gigawatt of compute deployed. Call it a toll booth on every gigawatt built.

Trajectory I Keep Underwriting

AI semiconductor revenue went from $8.4 billion in Q1 FY26 to $10.8 billion in Q2 to $16.7B in Q3, up 221% YoY, with $21.7B guided for Q4, up 236% YoY. Management now guides fiscal 2026 AI revenue to $58 billion, fiscal 2027 to roughly $115 billion, and fiscal 2028 to $230 billion. Hock Tan said on the call the company is "on target to exceed $30 in earnings per share in fiscal 2028." For context, FY2025 EPS was $6.82. And the dividend was raised 10% in December 2025, the fifteenth consecutive annual increase since fiscal 2011.

All of that hyperscaler compute has to be powered, cooled, and networked by somebody, and Broadcom is only one name on the list. We rounded up seven of the suppliers behind the AI buildout in a free report you can grab here.

Risk I Refuse To Wave Away

Customer concentration is real. Four names, Google, Anthropic, OpenAI, and Meta, drive most of the XPU roadmap. If any one of them slows deployment or shifts to an internal team, the growth curve bends. I also watch the $59.6 billion of gross fixed-rate debt at a 4% weighted coupon. What blunts the risk for me is the cash. $23.98B on the balance sheet, $13.67B of free cash in one quarter, and $5.6 billion of long-term debt paid down in Q3 alone. This is a company that can service its balance sheet and still buy back stock. Broadcom repurchased $7.8B of stock in Q1 FY26 under a $10B authorization approved March 2026.

Why My Buy Button Stays Active

Bonds pay me a coupon. Broadcom pays me a coupon that compounds behind the largest capital expenditure cycle in the history of computing. That is why I keep buying, and that is why I plan to keep buying every time the yield curve tries to talk me out of it.

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