For shareholders in the world’s second-largest semiconductor company, Broadcom (NASDAQ: AVGO), the last several years have borne incredible fruit. Over the past five years, Broadcom stock has provided a total return of approximately 690% as of the Apr. 30 close. The demand for the company’s AI data center infrastructure offerings may be second only to NVIDIA (NASDAQ: NVDA).
Its acquisition of VMware has given it an extremely powerful position in the virtualization market, and Broadcom has made VMware vastly more valuable.
However, the huge run-up in the company’s share price begs the question: Can Broadcom sustain gains long-term? The company is trading for a forward price-to-earnings (P/E) ratio of approximately 28x. This is around 38% higher than the forward P/E of the S&P 500 Index, which sits just above 20x.
This suggests that the market may be overvaluing Broadcom. But is that really the case, and is Broadcom a buy, hold, or sell right now?
This analysis will answer this question by breaking down Broadcom’s two main businesses: semiconductors and software.
Broadcom’s Semiconductor Business: Sustaining Strong Growth Is Far From Out of the Question
Broadcom stock has made most of its hay due to the rabid demand for AI-chips. Sales in this space have been growing at an incredibly fast pace. In 2024, AI-chips and networking solutions grew by 220%. In Q1 2025, the growth rate was 77%. Next quarter, the company sees 44% growth in AI for total AI revenue of $8.5 billion through the first half of 2025.
So, growth rates are coming down, but what is the company forecasting?
The company believes three hyperscalers will generate a serviceable addressable market (SAM) in AI of $60 billion to $90 billion in 2027. However, this is not the revenue the company expects to generate, only the size of the potential opportunity.
Using the current expected sequential growth rate of 7%, Broadcom’s AI-chip business would be worth around $18 billion by the end of 2025. If it grows at a compound annual growth rate of 44% in 2026 and 2027, at the same rate it expects next quarter, the company’s AI revenue could reach $37 billion by 2027.
This would mean it would need to capture about half of this SAM, at the midpoint. This would still be a tall task, but these numbers include only three customers. Overall, there is a significant chance Broadcom could sustain a powerful +40% AI growth rate for multiple years.
The company also has a non-AI chip business that is almost as large as its AI-chip business. This business has been shrinking, and so has the non-AI chip industry overall. But, the semiconductor industry is cyclical, so there is a strong chance of a significant recovery.
Broadcom’s Software Business Proves It's Not a One-Trick Pony
[content-module:Forecast|NASDAQ: AVGO]Some say Broadcom's massive growth in software isn’t impressive. They argue it only happened because Broadcom paid $69 billion for VMware. While that is somewhat true when comparing overall software revenues from 2023 to 2024, it is a vast oversimplification.
VMware’s revenues came onto the books in Q1 2024, causing Broadcom’s software revenues to increase by 153% versus Q4 2023. However, with the company’s Q1 2025 earnings release, we can see how well Broadcom grew its software revenues organically. They did a fantastic job, with Broadcom increasing software sales by 47%.
This is due to key changes the company has made at VMware, and it has more to achieve with VMware. It is still working to shift the remaining 40% of customers to its higher revenue subscription model.
The VMware acquisition shows how good the company is at spotting and fixing struggling businesses. This has been part of the company’s playbook for years now. Once Broadcom reduces the massive debt load it took on from VMware, the firm could be in a great position to do so again.
This possibility is another reason to be confident in Broadcom’s long-term chances of continuing to appreciate.
Broadcom: Strong Outlook and Execution Point to Good Things on the Horizon
The moment when Broadcom was a generational investment might be gone, but the stock still shows great promise. The company’s path to continued and strong growth is not theoretical, but entirely possible.
Also, management’s impressive ability to acquire and reinvigorate companies like VMware can create long-term opportunities that are not considered today.
Yes, the stock trades at a high multiple, but for good reason. The 28x forward P/E ratio is not outrageous. For long-term growth, Broadcom remains a buy.
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