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Broadcom (AVGO) is a global designer, developer, and seller of semiconductor and infrastructure software products. In December 2024, Broadcom's market capitalization surpassed $1 trillion for the first time, thanks to a significant increase in artificial intelligence (AI) revenues. The stock, valued at $724.8 billion, is down 28% year-to-date. Nonetheless, Wall Street believes the stock has the potential to bounce back and rally as much as 50%.
Furthermore, the high price estimate of $300 suggests potential upside of 80% over the next 12 months. Let’s find out more.
AI Powering Broadcom’s Growth
Broadcom’s stock experienced a remarkable revenue surge in its fiscal 2024, reaching $51.6 billion, a 44% increase over the previous year. This surge was fueled by a growing demand for AI chips in data center applications.
Fiscal 2025 is off to a strong start, fueled by explosive growth in AI and strong performance from its infrastructure software segment. The company operates in two segments. The semiconductor solutions segment generated $8.2 billion in revenue in the first quarter of fiscal 2025, an 11% increase year-over-year. Broadcom’s AI business was the standout performer, generating $4.1 billion in revenue — a 77% increase over the previous year. AI growth exceeded expectations, exceeding guidance of $3.8 billion, owing to stronger-than-expected shipments of networking solutions to major hyperscale customers. Adjusted earnings grew 45.4% to $1.60 per share, while total revenue increased by 25% to $14.9 billion. The company’s AI-related revenues totaled $4.1 billion.
Broadcom’s growth strategy has also included strategic acquisitions to diversify its product portfolio and increase its market presence. In November 2023, Broadcom acquired VMware for $69 billion, which not only expanded its infrastructure software capabilities, but also significantly increased its revenue streams. Infrastructure software revenue increased by a whopping 181% year-over-year in fiscal 2024. In the first quarter, it increased by 47% to $6.7 billion, including the full impact of VMware. Broadcom reported gross margins of 79.1% in Q1, boosted by a favorable product mix and software contribution.
Broadcom is also a dividend stock with a proven track record of dividend increases. Driven by increased cash flows and a large share count from the VMware acquisition, the company increased its quarterly dividend by 11% in the fourth quarter of fiscal 2024. It marked the 14th consecutive year of dividend increases, demonstrating its commitment to returning to shareholders. Broadcom has a forward dividend yield of 1.5%, which is higher than the tech sector average of 1.4%.
The company generated $6 billion in free cash flow (40% of revenue) and ended the quarter with $9.3 billion in cash. It distributed $2.8 billion in dividends and repurchased $2 billion of stock. Recently, the company announced a new $10 billion share repurchase program through December 2025. During the quarter, Broadcom reduced its debt by $1.1 billion, bringing total gross principal debt to $68.8 billion.
Broadcom is currently shipping XPUs in volume to three major hyperscalers, and four more cloud giants are collaborating with the company to create custom AI accelerators. These partnerships have not yet been factored into Broadcom’s estimated serviceable addressable market (SAM), which the company expects to reach $60 billion to $90 billion by fiscal 2027.
Looking ahead to Q2 of fiscal 2025, Broadcom expects total semiconductor revenue to be $8.4 billion, a 17% year-over-year increase, including $4.4 billion from AI. The company expects infrastructure software revenue to be $6.5 billion in Q2, up 23%. Total revenue of $14.9 billion in Q2 could grow by 19%.
Analysts tracking Broadcom expect a 21.1% increase in revenue in fiscal 2025, followed by another 15.9% increase in the next fiscal year. Analysts expect earnings to rise 35.3% in fiscal 2025 and 18.9% in fiscal 2026, respectively. Trading at 23 times forward earnings, AVGO is a reasonable AI stock to buy now for the long haul.
Is AVGO a Buy, Hold, or Sell on Wall Street?
Following the results, JPMorgan analyst Harlan Sur reiterated his “Buy” rating on AVGO, citing a strong combination of current performance and long-term growth prospects. The analyst noted that, in addition to impressive quarterly results, the company’s guidance for the coming quarter surpassed market expectations. Sur also emphasized Broadcom’s diverse product portfolio and success in upselling infrastructure software, which contributed to consistent revenue growth despite broader economic uncertainty. With strong cash flow generation and an increasingly positive outlook for AI-driven revenues, Sur has set a price target of $250.
On Wall Street, AVGO stock is rated a “Strong Buy.” Of the 32 analysts covering the stock, 29 recommend it as a “Strong Buy,” and three rate it a "Hold.” The average analyst target price of $249.25 indicates a 50% increase from current levels.
