Where Will Broadcom Stock Be in 3 Years?

Broadcom (NASDAQ: AVGO) has shown remarkable performance over the past three years, with its stock surging by 240%. This growth has significantly outperformed the PHLX Semiconductor Sector index, which posted a gain of just 27% during the same time frame.

Considering this impressive rally, investors may be curious about whether Broadcom can maintain its momentum over the next three years and if now is a good time to buy Broadcom shares after such strong performances. This article will investigate the key factors that could drive Broadcom’s growth in the future, explore whether this semiconductor stock has more potential for appreciation, and assess its valuation to determine if it remains an attractive option for investors looking to diversify their portfolios with a chip stock.

A Major Catalyst for Future Growth

Recently, Broadcom announced its fourth-quarter results for fiscal 2024, revealing a record annual revenue of $51.6 billion, a remarkable 44% increase from the previous year. Excluding the revenue boost from the acquisition of VMware, which took place in November, Broadcom’s organic revenue growth was still a healthy 9% over the year.

For fiscal 2024, Broadcom reported non-GAAP (adjusted) earnings of $4.87 per share, reflecting a 15% increase year-over-year. Notably, the company has provided guidance for the first quarter of fiscal 2025 that suggests further acceleration in growth, forecasting $14.6 billion in revenue, representing a 22% increase compared to the same quarter last year.

While Broadcom hasn’t offered full-year guidance, analysts anticipate that its revenue will grow by approximately 19% this fiscal year, reaching $61.1 billion. Projections indicate that Broadcom’s revenue will continue to rise at a pace of around 15% over the next couple of years.

The significant upward revisions in Broadcom’s revenue estimates for the coming years can be attributed to the soaring demand for the company’s artificial intelligence (AI) chips. These specialized chips are increasingly being utilized in data centers for training and running AI models, and for enhancing connectivity between servers to support demanding AI workloads.

Broadcom has reported a staggering 220% jump in AI revenue for fiscal 2024, achieving $12.2 billion in sales. The firm expects this upward trajectory to continue, projecting a 65% year-over-year revenue increase in AI chip sales for the current quarter, amounting to $3.8 billion. As the year unfolds, there may be even more robust growth in Broadcom's AI revenues.

This optimism stems from the addition of two major hyperscale customers that have opted for Broadcom’s custom AI processors. These chips provide an alternative to expensive graphics cards from Nvidia, offering cloud service providers a cost-effective solution for their AI needs. With this expanding customer base, Broadcom is well-positioned to capitalize on a substantial growth opportunity.

During the recent earnings call, management indicated that the addressable market for its custom AI accelerators and networking chips could be valued between $60 billion and $90 billion by fiscal 2027. If the market settles around the midpoint of $75 billion, and Broadcom maintains a 50% share of this market (compared to its current estimated share of 55% to 60%, according to JPMorgan), its AI revenue could reach $37.5 billion by fiscal 2027.

This forecast would represent nearly a threefold increase in AI revenue from the previous fiscal year. If Broadcom successfully holds its market share at 60% and the market size hits $90 billion as anticipated, its AI revenue could exceed $50 billion.

In such a scenario, Broadcom's overall revenue in fiscal 2027 could surpass existing analysts' expectations, primarily driven by this incremental AI revenue, which could rise by about $40 billion when compared to last year, assuming other business segments remain stable.

Is Broadcom Stock a Good Investment Now?

One positive aspect for investors considering Broadcom is its current trading price, which is set at about 35 times forward earnings. This valuation is relatively attractive, especially when compared to the Nasdaq-100 index, which also averages a price-to-earnings ratio of 35.

Additionally, Broadcom’s price/earnings-to-growth (PEG) ratio stands at 0.63, according to Yahoo Finance, based on projected five-year earnings growth. A PEG ratio below 1 indicates that a stock is undervalued relative to its expected earnings growth, making Broadcom an appealing option in this regard.

For investors interested in adding a reasonably valued AI stock to their portfolios that appears poised for robust growth over the next three years, Broadcom represents a solid opportunity to consider.

Broadcom, Stocks, Investment