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I last wrote about Broadcom in December 2024, when the stock was trading at $162 per share, with the stock currently 50% higher since then. The past year was great for long-term bulls, but investors who had their eye on the stock without pulling the trigger may be feeling some sententious FOMO (the fear of missing out) right about now.
Fret not; yield-seeking, dividend-loving, capital-gains-hunting tech-savvy portfolio holders. Despite its monumental one-year run, it’s not too late to invest in Broadcom. I’m bullish on the company despite the upward re-rating, based on its history of generating exceptional long-term returns, the massive growth potential of the AI chip market, and its compelling track record as a strong dividend growth stock, all of which make it an appealing opportunity for long-term investors.
AVGO is Not a One Year Wonder
The primary reason why it’s not too late to invest in Broadcom after its big year is because its recent metrics are nothing new for the stock — Broadcom is a long-term performer, not a flash in the pan.
In fact, over the past decade, Broadcom has generated a stellar total return of 2,850% for investors, far exceeding broader benchmarks. While it has been a good decade for equity investors, the S&P 500 (SPX), as represented by the Vanguard S&P 500 ETF (VOO), has generated a total return of 256% over the same period, meaning that Broadcom generated ~10x the return of the broader market. An investor who put $10,000 into Broadcom 10 years ago would have an investment worth $280,500 today, while an investor who put $10,000 into VOO would have an investment worth $25,584 today.
Even when looking at the more tech-centric Nasdaq 100 (NDAQ), Broadcom has outperformed. The Invesco QQQ Trust (QQQ) has generated a strong 456% total return over the past decade, but this strong performance still pales in comparison to Broadcom’s stellar return.
Winners tend to win for a reason, and they tend to keep winning over time, which gives me confidence that it’s not too late for investors to add Broadcom to their long-term portfolio. While the law of large numbers means Broadcom’s returns are unlikely to match those of the previous decade in the years ahead, the stock is well-positioned to deliver strong results (and returns) for its shareholders.
AVGO’s Under-the-Radar Dividend Growth
Broadcom’s spectacular performance over the years has somewhat overshadowed the fact that it is also an outstanding dividend stock, ranking in the top three in a recent TipRanks’ Best Dividend Stocks comparison. While shares yield just 1%, below the 1.3% average yield for the S&P 500, the company has a solid record of growing its dividend payout.
Broadcom has paid dividends to shareholders for 14 consecutive years and has increased its nominal payout yearly. Moreover, the semiconductor maker has grown its dividend at an impressive 14% compound annual growth rate over the past five years. The company also maintains a conservative dividend payout ratio of under 50%, so there is ample room to increase the dividend as earnings increase. While today’s 1% yield may look underwhelming, this penchant for dividend growth means that long-term shareholders will likely enjoy a superior yield-on-cost as the company continues to grow its dividend payout over the long term.
Hefty Tailwinds Pushing AVGO to New Heights
Broadcom is a major player in AI chips, and while this market has garnered more hype than substance so far, there is strong reason to expect growth in this sprawling sector in the years ahead. Precedence Research estimates that the size of the AI chip market totaled $73 billion in 2024 and expects it to grow at a remarkable 29% compound annual growth rate (CAGR) over the next decade, reaching $928 billion by 2034. Obviously, a lot can happen between now and 2034, so these numbers are best taken with a few grains of salt, but they illustrate the scale of the likely market for AI chips in the long term.
Broadcom predicts that the company can haul in $60-90 billion in sales of its custom AI chips in 2027, up from an AI revenue base of $12 billion in 2024.
Given this massive growth potential, it’s unsurprising that analysts also forecast Broadcom to achieve continued earnings growth in the years ahead. Wall Street analysts expect Broadcom’s EPS to grow 30% to $6.35 per share in 2025 before ramping up a further ~20% to $7.65 in 2026 and reaching $9.10 in 2027.
Is Broadcom a Buy, Sell, or Hold?
Turning to Wall Street, AVGO has received a Strong Buy consensus rating based on 23 Buy, three Hold, and zero Sell ratings assigned in the past three months. The average analyst AVGO stock price target of $237.08 per share implies a 2.15% potential downside from current levels.
Broadcom stock has almost doubled in value over the past 12 months, but long-term tech-focused investors who didn’t pull the trigger on AVGO a year or so ago mustn’t develop MOFO or regret missing the boat. The stock is a perennial darling for shareholders with an exemplary history of generating strong cumulative returns for years on end.
I remain bullish on Broadcom based on its excellent track record and its compelling history of dividend growth. While the AI chip market has, to some degree, been lifted by market hype, we are still in the early innings of the AI story, which leaves ample potential for the future, especially for investors with a long enough investment horizon to commit to a resilient trend-setter in the early days.
