Is It Too Late to Buy Broadcom Stock?

Artificial intelligence (AI) supercharged the business of semiconductor chipmakers over the past year, and in turn, their stocks. Broadcom (AVGO -2.19%) is among these AI beneficiaries as shares skyrocketed from a 52-week low of $79.51 a year ago to $185.16 in 2024.

Adding to this was the company’s announcement of a 10-for-1 forward stock split, which sent shares soaring to a record high. After the split took place in July, Broadcom stock dipped a bit but stubbornly remains well above its low.

Given the dramatic rise in Broadcom shares over the past year, does this mean it’s too late to buy the stock? Here’s a look into the company to help you assess if there’s still an upside opportunity for Broadcom over the long term.

Factors in Broadcom’s sales growth

One element to consider with an investment in Broadcom is how the firm’s business will expand over time. Currently, it’s experiencing incredible year-over-year sales growth. For example, in its fiscal third quarter, ended Aug. 4, Broadcom generated revenue of $13.1 billion, a 47% year-over-year increase.

But that growth is primarily thanks to its acquisition of VMware, which occurred in November 2023. When excluding VMware’s contribution, Broadcom’s 47% year-over-year growth would have been only 4% in Q3.

VMware is the leading provider of virtualization software, which allows IT organizations to run multiple operating systems on a single server. This is like having several computers in one and is an essential capability in the IT industry. But the acquisition alone isn’t the only factor driving revenue growth.

Broadcom switched VMware’s offerings to a software-as-a-service (SaaS) model. This change means customers now are renting VMware’s software instead of buying it, granting Broadcom ongoing, predictable subscription revenue.

Another factor driving sales growth is that VMware helps businesses run AI tech in their private cloud computing environment rather than in a public one, such as in Microsoft-owned Azure. Many businesses prefer this for privacy and security reasons, and it can lower costs as well.

This capability is one of the reasons why Broadcom purchased VMware. Not only does this expand its software offerings, thereby complementing its hardware products, but Broadcom now provides a more complete AI solution set to customers.

Other Broadcom pros and cons

Speaking of AI, how is Broadcom doing in this key growth area? The company’s AI-related revenue in its semiconductor division has not only increased over time, that growth is accelerating.

Last year, AI-related sales accounted for about 15% of the division’s revenue. In fiscal 2024, AI’s contribution is forecasted to hit 35% and account for over $10 billion of the company’s projected $51.5 billion in full-year revenue.

Part of Broadcom’s AI success comes from its work building custom AI accelerators for cloud computing hyperscalers such as Microsoft. These accelerators are essential to increasing the speed of AI systems.

During the firm’s fiscal Q3 earnings call, CEO Hock Tan described Broadcom’s sales growth in this area, stating, “As you know, our hyperscale customers continue to scale up and scale out their AI clusters. Custom AI accelerators grew three and a half times year on year.”

However, Broadcom admitted, a “relatively small number of customers account for a significant portion of our net revenue.” For example, Apple accounted for 20% of Broadcom’s sales in its 2023 fiscal year.

If the firm loses any of these customers, it could substantially hurt Broadcom’s revenue. Of course, the opposite is true as well. When Apple announced its new iPhone 16 devices recently, the news boosted Broadcom shares.

Deciding on Broadcom stock

AI is likely to continue being a boon to Broadcom for some time. In fact, the company expects sales to continue rising this year. It’s targeting fiscal Q4 revenue to hit $14 billion. That’s 51% growth over the prior year’s $9.3 billion.

In addition, Broadcom offers a dividend, adding a source of passive income to your investment. The company’s dividend yield is a decent 1.3%, and Broadcom possesses a good track record of increases, having raised its dividend for 13 consecutive years.

Another consideration is what Wall Street analysts think. The current consensus among them is a “buy” rating for Broadcom stock with a median share price target of $195.

These factors, the company’s AI hardware and software combination, and a focus on private clouds for AI workloads give it a solid strategy to carve out its share of the AI market. Consequently, Broadcom is an attractive long-term investment.

That said, Broadcom stock’s price-to-earnings ratio (P/E ratio) is at 146 currently. Contrast this to AI semiconductor giant Nvidia‘s P/E multiple of 56, and Broadcom looks expensive.

Data by YCharts.

So while it’s not too late to benefit over the long run with an investment in Broadcom, for now, the ideal approach is to wait for shares to dip again before buying. In the meantime, Broadcom is a worthwhile stock to put on a list of investment opportunities to watch.

Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.