Semiconductor giant Broadcom (NASDAQ:AVGO) has certainly been a winner this year, appreciating more than 50%. Shares of the chip company have continued to see upward momentum, as investors continue to pile into companies with even the most remote exposure to broader AI trends. Fortunately for Broadcom, a company with an impressive and resilient leadership team that has made the right strategic pivots into AI, this is a company that is heavily exposed to this long-term secular growth story. 

The company’s recent VMware acquisition has bolstered Broadcom’s recent results, with the company reported a remarkable 43% revenue increase in Q2 and a projected 50% earnings rise this year. Broadcom’s strong performance and dividends make it a compelling investment for long-term growth investors. That’s largely due to the fact that Broadcom’s growth appears sustainable, with earnings expected to rise over 25% in 2025, making it a solid pick during this market correction.

Benefiting from AI-driven growth, diversification, and a rising 1.4% dividend, Broadcom has positioned itself well as a strong contender to become the next $1 trillion company. Already up 40% this year and valued at more than $730 billion, it’s entirely possible that another 40% surge could take the company into this realm.

Let’s dive into what may feed into such a rally, and what investors should watch with this company.

Key Points About This Article:

• Broadcom remains one of the top options long-term investors seeking exposure to AI tailwinds continue to pile into, with AVGO stock up more than 50% year-to-date.
• The company has made a number of key acquisitions and partnerships which could propel this stock into the trillion-dollar club, if another AI rally materializes.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Cybersecurity Partnerships Provide Key Growth Catalyst

Broadcom recently launched its Catalyst initiative to enhance its Accelerate Program, partnering with elite ESG partners for Symantec and Carbon Black portfolios. This program established exclusive regional distribution relationships, including partners like TD SYNNEX and Arrow Electronics, offering value-added services. Broadcom has continued to provide advanced product management, marketing, and Tier 3 support within this initiative. 

Rob Greer, Broadcom’s VP of Enterprise Security, stated that the Catalyst initiative advanced channel partnerships in the cybersecurity sector. Partners anticipate increased profit growth and tailored strategies for customer needs. Arrow Electronics, Carahsoft, MBCOM Technologies, TD SYNNEX, and Westcon-Comstor highlighted opportunities to localize programs, address public sector security, expand regionally, and boost profitability. Broadcom’s history of innovative strategies, like Expert Advantage and Cybersecurity Aggregator, support partner growth and suggest such initiatives could bolster a more effective sales and product funnel over the long-term.

With a 14-year streak of dividend increases, Broadcom has clearly showcased its financial stability and growth potential. Analysts are optimistic on AVGO stock, forecasting strong revenue growth and revising their earnings estimates higher. These moves reflect broadly positive sentiment and confidence in the company’s strategy and market standing.

Strong Financials

Broadcom’s Q2 earnings surpassed expectations, with the company reporting $12.49 billion in sales and $10.96 in earnings per share. The company’s AI revenue forecast exceeded $11 billion, following its 10-for-1 stock split. Analysts adjusted their price targets higher on the news. Cantor Fitzgerald and Oppenheimer set theirs at $200, Evercore ISI at $201, and TD Cowen at $210, reflecting increased confidence this stock can continue to appreciate without meaningfully altering the company’s multiple. Notably, Broadcom’s VMware acquisition is expected to boost growth, and was a key driver behind some of these upgrades as well.

Broadcom is certainly among the more expensive stocks in the market, with a price-earnings ratio above 71-times at the time of writing, and revenue growth that will need to continue to accelerate for the company to see meaningful upside from here. That said, the company’s premium valuation reflects strong confidence from the market that analysts are correct, and the company’s growth forecasts could actually be under-selling Broadcom’s future potential.

Broadcom’s high valuation multiples are skewed by recent factors like the VMware acquisition and significant amortization costs. However, with a forward price-earnings ratio of just 25-times for FY 2025, its valuation appears more reasonable, suggesting potential for further growth.

Strong AI Demand Should Continue

Broadcom’s future looks promising, driven by its strong position in AI and recent growth. The company reported record AI revenue of $3.1 billion and a 43% year-over-year increase in total revenue to $12.5 billion. As mentioned, much of this growth stemmed from its $69 billion acquisition of VMware, completed last November.

To add, the company was able to see improvement in annual revenue, forecasting $50 billion for this year, which would be substantially higher than last year’s reported number of $35.8 billion. The VMWare acquisition and strong AI demand are driving growth, positioning Broadcom for further sales and profit increases. TD Cowen identified Broadcom as a key beneficiary of rising AI spending, noting robust demand for generative AI and a raised 2024 AI revenue forecast of $11 billion.

Broadcom Could Be a Solid Portfolio Addition

As one of the biggest and most promising tech and AI plays right now now, I wouldn’t be surprised to see AVGO stock continue to move higher from here. The company continues to innovate and develop its AI capabilities, growing its capital spending to do so. Indeed, so long as these investments pay off, I think this stock could certainly be more than fairly valued here. On a forward looking basis, looking past 2025, this could be a stock that turns out to be a steal, particularly if growth estimates increase over time. 

With 36 of 41 analysts favoring AVGO stock and providing a price target 30% above its current price, optimism remains high. I tend to agree with analysts and the market on this one. 

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