Broadcom (NASDAQ:AVGO) Stock Analysis – Is It Still a Buy Amid AI Boom and Valuation Risks?
Can NASDAQ:AVGO Maintain Its AI-Driven Momentum or Is It Overvalued?
Broadcom (NASDAQ:AVGO) has been one of the biggest beneficiaries of the AI revolution, driving its stock to new heights. With revenue soaring 51% year-over-year in Q4 FY2024 and adjusted EPS exceeding analyst expectations, Broadcom continues to solidify its position as a leader in semiconductor solutions and infrastructure software. AI-related semiconductor sales now contribute 41% of total semiconductor revenue, rising 224% YoY, proving the company’s dominance in high-performance AI chips.
However, despite strong fundamentals, NASDAQ:AVGO’s valuation has reached levels that raise concerns. Trading at 35.98x forward earnings, Broadcom is significantly above its historical average and sector peers, making it one of the most expensive semiconductor stocks. Investors need to weigh the company’s strong AI-driven growth against the risks of overvaluation and broader market corrections.
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Broadcom’s AI Expansion – How Big Is the Opportunity?
Broadcom’s AI strategy is paying off, with the company securing major deals to supply custom AI chips for Google, Apple, and Meta. The launch of its Trident 5-X12 chip in late 2023 introduced cutting-edge AI networking technology, positioning Broadcom at the forefront of AI infrastructure. The company’s 3.5D XDSiP Technology, launched in early 2025, is expected to drive further growth in AI accelerators.
Apple has also tapped Broadcom to develop the "Baltra" AI chip, which will be a key component of Apple’s AI-driven ecosystem by 2026. With these partnerships, Broadcom projects AI revenue to reach $60-90 billion by 2027, highlighting its aggressive push into the sector.
At the same time, Broadcom’s VMware integration is proving successful, with software revenue surging 196% YoY in Q4 FY2024. The shift toward subscription-based VMware services is expected to drive recurring revenue growth, reducing the company’s dependence on semiconductor sales cycles.
Will Broadcom Acquire Intel’s Chip Design Business?
Speculation around Broadcom acquiring Intel’s chip design and marketing business has surfaced, with reports suggesting Broadcom is actively evaluating a bid. Such an acquisition would expand Broadcom’s semiconductor portfolio, giving it access to Intel’s 7.9% market share in global semiconductor sales and strengthening its presence in enterprise computing.
Intel’s struggles with manufacturing efficiency have made its chip design unit an attractive target for Broadcom, which could streamline operations and improve margins. However, if Broadcom moves forward with the deal, it would significantly increase its debt burden, raising concerns over capital allocation and long-term financial flexibility.
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Financial Performance – How Strong Is Broadcom’s Growth?
Broadcom delivered outstanding Q4 FY2024 results, reinforcing its leadership in semiconductors and enterprise software:
- Revenue: $14.05 billion (+51% YoY, +8% QoQ)
- AI-related semiconductor revenue: +224% YoY, now 41% of total semiconductor revenue
- Networking revenue: +44% YoY, fueled by AI demand
- Infrastructure software revenue: +196% YoY, driven by VMware integration
- Adjusted EBIT margin: 62.7%, up 420 bps QoQ
Full-year cash flow from operations hit $20 billion (+10.3% YoY), allowing Broadcom to focus on deleveraging, stock buybacks, and dividend growth. Despite taking on significant debt to fund the $69 billion VMware acquisition, Broadcom has managed to reduce its debt-to-EBITDA ratio to 2.1x, below its target of 2.5x.
However, the company’s broadband revenue declined by 51% YoY, reflecting weakness in non-AI segments. While AI and software growth offset this decline, long-term sustainability in diversified revenue streams remains a key risk factor.
Valuation – Is NASDAQ:AVGO Overpriced?
Broadcom’s valuation is stretched compared to historical levels and sector peers. The stock trades at:
- Forward P/E: 35.98x, well above the semiconductor industry average of 22.85x
- Forward P/S: 15.80x, more than twice the sector average of 7.04x
This premium suggests that AI growth is fully priced in, leaving little margin for error. Historically, semiconductor stocks experience cyclical downturns, and any slowdown in AI spending could trigger a correction.
Compared to NVIDIA (NASDAQ:NVDA), which trades at ~30x forward earnings, Broadcom is even more expensive despite having lower AI exposure.
Technical Analysis – Is Broadcom Due for a Pullback?
Broadcom’s stock has been in a strong uptrend since early 2023, but technical indicators suggest a correction is likely.
- The stock recently peaked at $250 before entering a correction phase.
- MACD signals negative momentum, indicating at least two more weeks of downside pressure.
- Support is expected at $187, a level previously tested multiple times in 2024.
If the correction continues, a drop toward $187 would represent a 20% pullback from recent highs, presenting a better entry point for long-term investors.
Risks to Broadcom’s Growth Outlook
Several risks could impact Broadcom’s ability to sustain growth:
- Geopolitical tensions: U.S.-China trade conflicts and semiconductor export restrictions could disrupt supply chains and impact Broadcom’s production.
- Valuation compression: If growth expectations moderate, Broadcom’s high P/E and P/S multiples could contract, leading to stock price declines.
- AI sector volatility: While AI demand is booming, spending cycles fluctuate, and any slowdown in AI chip orders could pressure revenue growth.
- Declines in non-AI segments: While AI revenue is strong, weakness in broadband and industrial markets (-51% YoY in Q4 2024) could weigh on overall performance.
Should You Buy, Sell, or Hold NASDAQ:AVGO Stock?
Broadcom remains one of the best AI-driven growth stocks, with strong fundamentals, expanding margins, and strategic acquisitions. However, the current valuation is stretched, making it a risky buy at these levels.
- Bull Case: If AI revenue continues to surge, VMware integration delivers strong recurring cash flow, and potential Intel acquisitions strengthen its portfolio, Broadcom could sustain its premium valuation.
- Bear Case: Overvaluation, technical weakness, and macro risks could trigger a sharp pullback, offering better entry points in the future.
At $259 per share, Broadcom’s fair value suggests only 13.4% upside from current levels. With limited margin of safety, a correction to $187 would offer a more attractive buying opportunity.
For now, NASDAQ:AVGO is a HOLD, with a buy target closer to $187.
