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Shares of Broadcom (AVGO), a semiconductor and infrastructure software solutions provider, have gained 112% so far in 2024. This impressive rally in AVGO stock has been driven by strong growth in artificial intelligence (AI) revenue, which skyrocketed by 220% year-over-year in fiscal 2024. Broadcom’s custom AI accelerators – dubbed XPUs – and its robust Ethernet networking portfolio are major contributors to this growth.
The AI momentum has propelled Broadcom’s market capitalization past the $1 trillion mark. Looking ahead, management remains confident that AI revenue will continue to be the company's primary growth engine.
However, the rally in AVGO stock has led to concerns about its valuation. Additionally, softness in broadband and industrial segments could create short-term headwinds, which could dampen future performance.
Let’s examine Broadcom’s growth prospects and potential risks more closely to determine whether the stock is a buy or a sell after such a strong rally.
AI Revenue: A Key Growth Catalyst for AVGO
Broadcom’s AI revenue has grown rapidly, climbing from $3.8 billion in fiscal 2023 to $12.2 billion in 2024. Thanks to this exponential growth, it now accounts for 41% of the company’s semiconductor revenue, which hit a record-breaking $30.1 billion for the year. Broadcom’s networking solutions, particularly its AI-focused Ethernet portfolio, are a key driver of this growth. In Q4 alone, networking revenue reached $4.5 billion — a 45% increase year-over-year — powered by a remarkable 158% surge in AI-related networking sales.
Key products like the Tomahawk and Jericho3-AI switches have gained strong traction among hyperscale customers, who are doubling down on AI infrastructure. In fact, Broadcom’s shipments of AI XPUs to these hyperscalers have doubled year-over-year, while AI connectivity revenue has quadrupled. This trend is expected to continue into 2025 as demand for scalable AI networking solutions accelerates.
Looking ahead, Broadcom plans to roll out next-generation XPUs built on advanced 3-nanometer technology. These next-generation AI accelerators will hit the market in the latter half of fiscal 2025 and are expected to solidify Broadcom’s dominance in the AI accelerator space.
Management also sees a long-term opportunity as hyperscalers deploy massive XPU clusters, creating an addressable market for AI hardware solutions worth between $60 billion and $90 billion by fiscal 2027. This presents a significant opportunity for the company to capture a leading market share, with expectations for strong revenue growth from its 2024 base.
While Broadcom is well-positioned to capitalize on this massive opportunity, two more hyperscalers have selected it to develop next-generation AI XPUs, potentially expanding the SAM even further.
Diversified Revenue Streams: Beyond AI
While AI is undeniably the star of Broadcom’s growth story, other segments are showing signs of stability and recovery.
Server Storage Connectivity rebounded in Q4, and the trend is likely to continue, with management expecting the growth to continue as enterprise demand recovers. Similarly, wireless revenue rose 30% sequentially to $2.2 billion in Q4, driven by seasonal product launches and higher content from a major North American customer. Despite expectations for a slight dip in Q1, wireless revenue is forecasted to remain stable year-over-year.
Meanwhile, broadband revenue hit a low point in Q4, declining 51% from the previous year to $465 million. However, early signs of recovery are emerging as service providers increase orders, and Broadcom expects a gradual rebound beginning in Q1 2025.
Should Investors Buy AVGO Stock After a 112% Rally?
Broadcom’s performance in 2024 has been nothing short of extraordinary, propelled by its dominant position in AI accelerators and networking solutions. As AI adoption continues to accelerate, Broadcom’s growth prospects remain robust, particularly as hyperscalers expand their infrastructure and demand cutting-edge connectivity solutions.
While concerns around valuation and segment-specific softness warrant caution, Wall Street analysts maintain a bullish outlook on Broadcom stock, with a consensus rating of “Strong Buy.”
For long-term investors, Broadcom’s leadership in AI, new product launches, and massive addressable market suggest that AVGO remains a compelling investment for 2025—even after its impressive run in 2024.
