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While several stocks of the S&P 500 Index ($SPX) have reported their quarterly results this earnings season, one mega-cap tech giant scheduled to report its quarterly results this week is Broadcom (AVGO). Valued at a market capitalization of $840 billion, Broadcom stock has returned over 15,000% to shareholders since its initial public offering in 2009, after accounting for dividend reinvestments.
Broadcom is a semiconductor company that is part of the artificial intelligence (AI) megatrend. It provides solutions for artificial intelligence and machine learning (ML) workloads through networking and storage solutions. Broadcom’s switch chips enable high-speed bandwidth connectivity, which is crucial for AI cluster communication, as they support advanced features required for distributed AI training. Moreover, its storage adapters and controllers optimize data movement between storage systems and AI processors, reducing latency and improving throughput for large datasets.
Broadcom completed the acquisition of VMware last December, positioning it to provide cloud infrastructure and virtualization technology essential for AI deployments. The company is optimistic about the robust demand for high-performance computing components required to run AI workloads.
Strong Revenue Growth for Broadcom
Broadcom has increased its revenue from $4.26 billion in fiscal 2014 to $35.8 billion in fiscal 2023. In the last 12 months, its sales have risen by 32% year-over-year to $46.81 billion, primarily due to demand for AI products.
During its last earnings call, Broadcom forecast AI sales to touch $12 billion in fiscal 2024, above its previous projection of $11 billion. Its networking division, which houses AI solutions, reported revenue of $4 billion in fiscal Q3, 43% higher than the year-ago period and accounting for 55% of total semiconductor sales. Broadcom tied its strong growth in the networking business to higher demand as hyperscale customers continue to expand AI infrastructure.
In fiscal Q4, Broadcom expects AI sales to grow by 10% sequentially and surpass $3.5 billion as hyperscale customers scale up and expand AI clusters, which indicates sustained momentum in the AI infrastructure market.
Analysts tracking AVGO stock expect it to report revenue of $14.07 billion and adjusted earnings of $1.39 per share in fiscal Q4. In the year-ago period, it reported revenue of $9.29 billion and earnings of $1.11 per share. While earnings are forecast to grow by 51.3%, earnings growth estimates are lower at 26%.
Is AVGO Stock Overvalued?
Analysts tracking the tech stock expect Broadcom’s sales to touch $70 billion in fiscal 2026. Comparatively, adjusted earnings are forecast to expand from $4.22 per share in fiscal 2023 to $7.50 per share in 2026, while free cash flow is projected to touch $35 billion, up from $17.6 billion in this period.
Today, AVGO stock is priced at 47x trailing free cash flow (FCF). If it trades at 40x trailing FCF, the tech stock will be valued at $1.4 trillion in December 2026, indicating upside potential of 66% from current levels.
Broadcom’s widening cash flows will help lower balance sheet debt and raise dividends further. Today, Broadcom pays shareholders an annual dividend of $2.11 per share, translating to a forward yield of 1.2%. Notably, these payouts have risen from $0.17 per share in 2015.
Of the 33 analysts covering Broadcom stock, 30 recommend “Strong Buy,” and three recommend “Hold.” The average target price for AVGO stock is $196.03, 10% higher than current prices as of Dec. 6.
