Broadcom (AVGO) has been riding a wave of accelerated revenue growth in recent quarters, powering its stock to advance by an incredible 127% over the past year. This upward trend in revenue growth and the corresponding stock surge remind me of NVIDIA’s (NVDA) explosive performance in 2023, where its surging revenues carried into 2024, driving unprecedented gains. While it’s uncertain if Broadcom can replicate NVIDIA’s dramatic trajectory, its strong underlying prospects make me form a bullish outlook on the stock.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
Recent Revenue Growth Marks a Record-Setting Acceleration
What’s special about Broadcom’s revenue growth is that it has entered a phase of incredible acceleration that has outpaced past trends. Note that the company has historically seen various phases of accelerating and decelerating revenues due to the highly cyclical nature of the semiconductor industry. However, this time around, Broadcom’s performance is unmatched, with revenue growth advancing from mid-single digits in 2023 to an astonishing 34.2%, 43.0%, 47.3%, and 51.2% over the past four quarters (Q1-Q4 of Fiscal 2024), respectively.
One powerful driver behind this acceleration during this period has been AI, which has proven a game-changer for Broadcom. Evidently, the company’s custom AI accelerators (XPUs) and networking solutions have registered meteoric demand. Accordingly, in Fiscal 2024, AI revenue increased 220%, reaching $12.2 billion and constituting 41% of semiconductor revenue. In turn, the increase in demand was powered by hyperscalers deploying massive AI clusters, thus increasing the reliance on Broadcom’s cutting-edge technology.
Another noteworthy catalyst was the acquisition of VMware, which Broadcom acquired toward the end of 2023 and paid off big time in Fiscal 2024. Broadcom streamlined the software giant’s operations, enabling revenue contributions that exceeded $21 billion during the year. Notably, the VMware Cloud Foundation, a full-stack software solution for private cloud environments, has gained traction among enterprise clients quite rapidly. Finally, the broader semiconductor recovery led to a rebound from prior cyclical lows, also boosting results. Rising demand in enterprise networking and storage has blended with AI’s rapid growth, strengthening Broadcom’s overall revenue potential.
Can Broadcom Sustain Its Momentum?
Now, trying to predict whether Broadcom’s revenue growth can maintain this breakneck pace or achieve an “NVIDIA moment” is challenging. Much of NVIDIA’s rally hinged on an unforeseen explosion in AI-related demand, a phenomenon almost impossible to forecast. However, this doesn’t mean that the company cannot sustain excellent revenue and earnings growth over the medium term.
Wall Street analysts remain optimistic, projecting Broadcom’s revenue growth to stabilize in the mid-to-high teens over the next few years. Of course, these growth rates are unlikely to mirror NVIDIA’s triple-digit gains. Still, Broadcom’s product pipeline, especially in AI, and enduring momentum in its VMware and networking segments provide a strong foundation for growth. Furthermore, continued innovation, such as its upcoming 3nm XPUs, should ensure Broadcom remains competitive in high-demand markets.
Valuation: Growth Potential Is Still Underpriced
But even if Broadcom doesn’t have its “NVIDIA moment” in 2025, I believe that its valuation remains quite appealing. The company is expected to achieve EPS of $6.34 in Fiscal 2025, which implies a 30.3% increase from last year. Analysts predict then EPS growth of 20% in 2026 and 19% in 2027, which essentially means the stock is trading at a forward P/E ratio of 25x Fiscal 2027 EPS.
Sure enough, a valuation based on projections several years out might seem speculative. Yet, Broadcom’s growth trajectory forms a compelling argument for its ability to grow and exceed today’s price levels. Its dominance in high-growth segments like AI accelerators and enterprise software ensures that it remains well-positioned to deliver returns, even after its substantial rally.
Is AVGO Stock a Buy?
Wall Street’s view on the stock has turned somewhat mixed following the stock’s triple-digit rally over the past year. In particular, Broadcom retains a Strong Buy consensus rating stemming from 23 Buy and three Hold recommendations assigned in the past three months. Nevertheless, at $234.38, the average AVGO stock forecast implies no upside potential moving forward.
If you’re trying to figure out which analysts to follow for buying or selling AVGO stock, Vivek Arya from Bank of America Securities (BAC) is definitely worth a look. Over the past year, he’s been the most profitable analyst covering AVGO, with an average return of 72.10% per rating and a perfect 100% success rate.
Final Thoughts
Overall, Broadcom’s extraordinary revenue acceleration, powered by AI demand, the VMware acquisition, and a broader semiconductor recovery, positions the company for continued top- and bottom-line gains in Fiscal 2025 and beyond. However, achieving an “NVIDIA moment” is uncertain and probably unlikely.
Nevertheless, its foothold in high-growth markets like AI and enterprise software provides a solid footing for sustained growth. Along with shares trading at a rather compelling valuation, I believe that Broadcom stock remains an attractive opportunity for investors, even if its stretched rally from 2024 implies a lack of further gains from here.
