Nvidia (NVDA) has been the defining company of the current AI megatrend, becoming perhaps the best way to benefit from this revolutionary technology. It’s not the only semiconductor player in the fray, however, with Palo Alto, CA-based Broadcom ( AVGO ) making a strong case for itself.
And now financial services major JP Morgan has hailed the company as a must-have in investors’ portfolios. Why? Analyst Harlan Sur pointed out that the continued increase in capital spending by hyperscalers in general and the subsequent increase in demand for ASIC chips, or application-specific integrated circuits, in particular, bode well for Broadcom.
Despite shares rising eightfold over the past year and up 44% year-to-date (YTD), Broadcom, with a market cap of $1.6 trillion, is relatively lesser known than its ‘Mag 7’ peers. Market leader in custom ASICs, Broadcom traces its origins to 1961. Broadcom currently operates two primary business segments: Semiconductor Solutions and Infrastructure Software. While the former focuses primarily on custom silicon for data centers, the latter is geared toward enterprise software.
So, armed with JP Morgan’s endorsement, is AVGO stock a strong investment choice, or is the company’s valuation wrong? Let’s find out.
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They are not explicitly put in the spotlight, but Broadcom’s enviably solid fundamentals must have boosted JP Morgan’s belief in the company. Over the past 10 years, Broadcom’s revenue and earnings have grown at healthy CAGRs of 25.07% and 32.46%, respectively. In addition, Broadcom has a long history of consistent quarterly earnings with no misses for more than two years.
The latest results for Q4 2025 were no different, with both revenue and earnings beating estimates, making the sharp post-earnings drop even more puzzling. Revenue for Q4 was $18.02 billion, up 28% year over year. While the chip segment grew 35% year-on-year (YoY) to $11.07 billion, the high-margin and fast-growing enterprise software segment saw revenue grow 19% year-over-year to $6.94 billion.
Earnings of $1.95 per share are up 37% over the past year. Not only was this the company’s eighth consecutive quarter of year-over-year earnings growth, but it was also the company’s eighth consecutive quarter of earnings beat. Broadcom also paid a cash dividend of $0.59 per share during the quarter, for a dividend yield of 0.69%. In particular, one of those rare dividend-paying chip companies, Broadcom, has raised dividends consecutively for the past 15 years.
However, Broadcom is also a big cash generator. In Q4 2025, the company’s cash flow from operations was $7.7 billion, up 37% year-over-year, while free cash flow also rose 36% over the same period to $7.5 billion. Overall, the company ended the quarter with a cash balance of $16.2 billion, much higher than the short-term debt level of $3.2 billion.
For Q1 2026, Broadcom expects revenue to be $19.1 billion, which would mean an annual growth rate of 28%.
However, like many of the venerable names in the AI space, Broadcom continues to trade at expensive levels. Forward P/E, P/S, and P/CF of 33.77, 16.66, and 31.93 are all well above the sector medians of 24.34, 3.39, and 20, respectively. Conversely, growth forecasts remain well above the industry average at 35.30% (vs. 8.03%) for revenue and 107.22% (vs. 10.72%) for earnings.
Analysts may not be so down about Broadcom’s future growth assumptions. The global ASIC market is expected to reach approximately USD 42.36 billion by 2034, at a CAGR of 7.38% thereafter. And Broadcom, with a market share of 55%-60%, is the undisputed leader.
Moreover, Broadcom appears poised to remain the dominant player in this space, thanks to its substantial $73 billion in hardware inventory and unmatched experience building custom silicon XPUs for hyperscalers like Alphabet ( GOOG ) ( GOOGL ) and Meta ( META ). In addition, Broadcom made headlines in October with a major tie-up with OpenAI, committing to deploy 10 gigawatts of custom, collaboratively designed AI accelerators. In particular, the two companies jointly design the entire stack, incorporating Broadcom accelerators and Ethernet networking equipment for both scale-out clusters and scale-out factories. Deployment of these rack systems is scheduled to begin in the second half of 2026 and be completed by the end of 2029. Analysts peg the multi-year revenue potential from this arrangement in the $150 billion to $200 billion range.
Meanwhile, Broadcom’s track record of superior performance and its favorable positioning in the custom ASIC arena is found in custom inference chips that typically offer more cost efficiencies compared to Nvidia’s general-purpose GPUs, along with steady generational leaps in raw capacity. Adding to this advantage is the company’s effort to remain at the forefront of high-speed interconnects through the Tomahawk 6 switch, which is the first commercially available 102.4 Tbps Ethernet product. This latest iteration doubles the throughput of its predecessor while offering versatile port configurations (up to 1,024 SerDes 100G or 512 200G lanes), which helps customers consolidate hardware and reduce the total number of switches in large builds.
Finally, on the software side, VMware remains the centerpiece of Broadcom’s strategy. The recent release of VMware Cloud Foundation 9 introduces a fully unified private cloud stack that works equally well on-premises or in hosted settings. Built from the ground up to handle any workload, including demanding AI pipelines, in a locked configuration, VCF 9 offers enterprises a credible alternative to public hyperscales. For governments and regulated entities that require data sovereignty, local flexibility could prove particularly compelling, opening up a sizable addressable market across countries, prioritizing secure, internally controlled infrastructure.
Thus, analysts have assigned a “Strong Buy” rating to the stock, with an average target price of $453.95. This denotes an upside potential of around 37% from current levels. Of the 40 analysts covering the stock, 34 have a “Strong Buy” rating, three have a “Moderate Buy” rating and three have a “Hold” rating.
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At the time of publication, Pathikrit Bose did not hold (either directly or indirectly) any position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
