Broadcom (NASDAQ: AVGO) is strategically positioned as a key player in the global artificial intelligence (AI) infrastructure build-out. The company’s XPUs, high-speed Ethernet-based networking products, and VMware Cloud Foundation private cloud software platform are in high demand by hyperscalers and AI labs for running large AI workloads.
The upcoming fourth-quarter and fiscal year 2025 results, set to be reported on Dec. 11, will have a significant impact on 2026 expectations and Broadcom’s future share price trajectory. Currently trading at 40.3 times forward earnings, much of the potential upside is already priced in. Investors should carefully consider whether to buy, sell, or lock in profits ahead of the quarterly update.
Broadcom’s management has indicated that AI revenue is expected to grow even faster than the estimated 50% to 60% year-over-year rate seen in fiscal 2025. This growth is driven by strong demand for custom accelerators from major hyperscaler clients and a rapid expansion at a fourth client. Each of the three hyperscaler customers is projected to deploy 1 million XPUs in AI clusters by 2027, showcasing the increasing adoption of Broadcom’s technology.
Furthermore, Broadcom’s partnership with Alphabet has been a significant growth driver. The collaboration dates back to 2016, with Broadcom assisting Alphabet in developing and manufacturing its specialized AI chips, known as Tensor Processing Units (TPUs). The increasing use of TPUs for training and inference in Alphabet’s frontier models enhances Broadcom’s long-term visibility in the AI semiconductor market.
In addition to AI-related products, Broadcom’s advanced packaging, networking interconnects, and SerDes interfaces are gaining traction in newer generations of TPUs. The company’s Ethernet-based networking switches and interconnects are also seeing adoption by hyperscalers for AI clusters, enabling efficient connectivity between compute nodes.
Broadcom’s revenue mix is improving, with the higher-margin infrastructure software business accounting for almost 43% of total revenue. The VMware Cloud Foundation platform is seeing strong adoption among top customers, providing a source of durable, high-margin revenue streams for Broadcom.
While the non-AI chip business has been relatively flat, modest improvement is expected in the fourth quarter. Broadcom is guiding for strong revenue growth, with semiconductor revenue projected to rise 30% year over year and AI semiconductor revenue expected to surge 66% year over year.
Despite the strong growth catalysts, Broadcom’s elevated valuation leaves little room for error. Long-term investors can consider taking a small stake and using a dollar-cost averaging strategy to build a position. For existing shareholders, holding through the Dec. 11 update may be advisable, given the company’s robust backlog and potential for further share price appreciation.
Before making any investment decisions, it’s essential to conduct thorough research and consider all available information. The Motley Fool’s Stock Advisor team has identified 10 top stocks for investors to buy now, excluding Broadcom. These stocks have the potential to generate significant returns in the coming years, providing an opportunity for growth and diversification in your portfolio.
