Broadcom AVGO shares have dropped 11.4% in the past month. The company has been suffering from the ongoing sell-off in technology stocks amid rising fears of a recession following U.S. President Donald Trump’s decision to levy tariffs on top trading partners, including China, Mexico and Canada, which has increased the chances of a trade war. Broadcom generated roughly 20% of net revenues from shipments to China (including Hong Kong) in fiscal 2024.
However, we believe the dip offers a massive opportunity for investors to buy the stock. An innovative portfolio, rich partner base, solid VMware business and strong balance sheet, as well as free cash flow generating ability, are attractive for growth-oriented investors. Let’s dig deep to find out more.
AVGO Stock Performance
Zacks Investment Research
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Strong Portfolio to Boost Broadcom’s Prospects
Strong demand for Broadcom’s application-specific integrated chips (ASICs), designed to support AI and machine learning and make these tasks more efficient, aids top-line growth. Alphabet GOOGL and Meta Platforms META are notable users of Broadcom’s ASICs. Custom AI accelerators (XPUs), which are a type of ASIC, are necessary to train Generative Artificial Intelligence (GenAI) models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost.
AVGO’s innovative portfolio is a key catalyst. The company’s next-generation 3-nanometer XPUs are the first of their kind to market in that process node. Broadcom is on track for volume shipment to hyperscale customers in the second half of fiscal 2025. AVGO is now planning to develop the industry’s first 2-nanometer AI XPU packaging 3.5D and targets scaling clusters of 500,000 accelerators for hyperscale customers.
AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. It believes that by 2027, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric. Serviceable Addressable Market for XPUs and network are expected to be between $60 billion and $90 billion in fiscal 2027 alone. The company has expanded its clientele with the addition of four new hyperscalers (although AVGO considers them as partners currently).
Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies DELL, Meta Platform, Juniper and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues. AVGO expects second-quarter fiscal 2025 AI revenues to jump 44% year over year to $4.4 billion. Semiconductor revenues are expected to surge 17% year over year to $14.9 billion.
Growing Security Portfolio Aids AVGO
Broadcom’s focus on delivering AI-powered, proactive security to stay ahead of evolving cyber threats has been noteworthy. In March 2025, AVGO introduced updates to VMware vDefend, improving security planning, lifecycle management, and scalability for VMware Cloud Foundation with new tools like the Security Segmentation Assessment and Report, optimized micro-segmentation, and advanced Network Detection and Response, all aimed at improving threat prevention and operational efficiency.
Last week, AVGO introduced Incident Prediction, which extends the security feature of Adaptive Protection, a unique capability of Symantec Endpoint Security Complete (SES-C). SES-C is an integrated endpoint security platform that delivers cloud-based protection with AI-guided security management, all on a single agent/console architecture.
Meanwhile, Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of Feb. 2, 2025, cash and cash equivalents were $9.31 billion, and Broadcom generated $6.11 billion in cash flow from operations. Free cash flow was $6.01 billion and accounted for 40% of revenue at the end of first-quarter fiscal 2025.
The strong balance sheet is helping AVGO pay consistent dividends and return cash to shareholders through buybacks. Early this month, Broadcom announced that its board has authorized a new share repurchase program to repurchase up to $10 billion of its common stock through Dec. 31, 2025.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $6.60 per share, up 0.6% over the past 30 days, indicating 35.52% year-over-year growth.
Broadcom Inc. Stock Price and Consensus
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
The consensus estimate for fiscal second-quarter earnings is pegged at $1.57 per share, up by a penny over the past 30 days, indicating 42.73% year-over-year growth.
AVGO’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.44%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
AVGO Shares Trading at a Premium
AVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales, AVGO is trading at 11.65X, higher than the sector’s 5.06X.
Price/Sales Ratio (Forward 12 Months)
Zacks Investment Research
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Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. We believe these factors justify the premium valuation.
Broadcom currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.
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