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Broadcom Rises 13% in a Month: Buy, Sell or Hold the AVGO Stock?
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Key Takeaways
AVGO shares jumped 12.7% in a month, outpacing sector peers and driven by AI strength and partner momentum.
Strong XPU and AI networking demand boosted revenue, with XPU sales rising double digits.
Despite growth, AVGO's gross margin faces pressure from lower-margin XPUs.
Broadcom (AVGO - Free Report) shares have risen 12.7% in a month, outperforming the Zacks Electronics Semiconductors industry’s return of 11.4% and the Zacks Computer and Technology sector’s growth of 6.1%. AVGO is benefiting from an expanding portfolio, rich partner base, solid VMware business, strong balance sheet and impressive free cash flow. AVGO has outperformed its semiconductor peers, including Rambus (RMBS - Free Report) and Marvell Technology (MRVL - Free Report) . While Rambus shares have returned 11.6% YTD, Marvell Technology shares have appreciated 8.8%.
Custom AI accelerators (XPUs), which are a type of application-specific integrated chips (ASICs), are necessary to train Generative AI models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Strong demand for Broadcom’s ASICs is driving top-line growth. In the second quarter of fiscal 2025, XPU revenues grew double digits year over year. Alphabet and Meta Platforms (META - Free Report) are notable users of Broadcom’s ASICs.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Broadcom’s innovative portfolio has been a key catalyst. Strong demand for AI networking revenues, which jumped 170% year over year, represented 40% of AI revenues. Broadcom’s networking portfolio, which comprises Tomahawk switches, Jericho routers and NICs, is helping it gain market share among hyperscalers.
However, Broadcom’s third-quarter fiscal 2025 guidance reflects sluggishness in server storage, wireless and industrial businesses. Third-quarter fiscal revenue guidance of $15.8 billion suggests 21% year-over-year growth but indicates modest sequential growth. Gross margin is expected to decline roughly 130 basis points sequentially, reflecting a higher mix of XPUs with AI revenues. A higher mix of lower-margin XPUs in the revenue mix is expected to keep gross margin under pressure throughout fiscal 2025.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.66 per share, down by a couple of cents over the past 30 days, indicating 333.87% year-over-year growth.
So, what should investors do with the AVGO stock? Let’s find out.
Growing Portfolio, Rich Partner Base to Boost AVGO’s Prospects
Broadcom’s focus on delivering AI-powered, proactive security to stay ahead of evolving cyber threats has been noteworthy. In March, AVGO introduced updates to VMware vDefend, improving security planning, lifecycle management, and scalability for VMware Cloud Foundation with new tools like the Security Segmentation Assessment and Report, optimized micro-segmentation, and advanced Network Detection and Response, all aimed at improving threat prevention and operational efficiency. In April, Broadcom introduced Incident Prediction, which extends the security feature of Adaptive Protection, a unique capability of Symantec Endpoint Security Complete (SES-C).
Last month, Broadcom announced the general availability of VMware Cloud Foundation (VCF) 9.0. At the end of the fiscal second quarter, approximately 87% of the largest 10,000 customers have adopted VCF. The launch of the next-gen Tomahawk 6 switch is a game changer as it enables clusters of more than 100,000 AI accelerators to be deployed in only two tiers instead of three. Reduction in lower-tier offers lower latency, higher bandwidth and reduced power consumption that enables much better performance in training next-generation frontier models.
AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. It believes that by 2027, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric.
Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues. AVGO expects third-quarter fiscal 2025 AI revenues to jump 60% year over year to $5.1 billion.
Strong Liquidity Aids AVGO to be Shareholder Friendly
Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of May 4, 2025, cash and cash equivalents were $9.47 billion, and Broadcom generated $6.55 billion in cash flow from operations. Free cash flow was $6.41 billion and accounted for 43% of revenue at the end of the second quarter of fiscal 2025.
The strong balance sheet is helping AVGO lower leverage, pay consistent dividends and return cash to shareholders through buybacks. The company recently paid off $1.6 billion of debt, resulting in gross principal debt of $67.8 billion. Broadcom paid $2.8 billion of cash dividends and purchased $4.2 billion, or approximately 25 million shares of common stock, in the second quarter of fiscal 2025.
AVGO Shares Trading at a Premium
AVGO stock is trading at a premium, as suggested by the Value Score of D.
In terms of the forward 12-month Price/Sales, AVGO is trading at 18.13X, higher than the sector’s 6.65X, Rambus’ 9.57X and Marvell Technology’s 7.31X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. However, declining gross margin along with a challenging macroeconomic condition doesn’t justify the premium valuation.
Image: Bigstock
Broadcom Rises 13% in a Month: Buy, Sell or Hold the AVGO Stock?
Key Takeaways
Broadcom (AVGO - Free Report) shares have risen 12.7% in a month, outperforming the Zacks Electronics Semiconductors industry’s return of 11.4% and the Zacks Computer and Technology sector’s growth of 6.1%. AVGO is benefiting from an expanding portfolio, rich partner base, solid VMware business, strong balance sheet and impressive free cash flow. AVGO has outperformed its semiconductor peers, including Rambus (RMBS - Free Report) and Marvell Technology (MRVL - Free Report) . While Rambus shares have returned 11.6% YTD, Marvell Technology shares have appreciated 8.8%.
Custom AI accelerators (XPUs), which are a type of application-specific integrated chips (ASICs), are necessary to train Generative AI models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Strong demand for Broadcom’s ASICs is driving top-line growth. In the second quarter of fiscal 2025, XPU revenues grew double digits year over year. Alphabet and Meta Platforms (META - Free Report) are notable users of Broadcom’s ASICs.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Broadcom’s innovative portfolio has been a key catalyst. Strong demand for AI networking revenues, which jumped 170% year over year, represented 40% of AI revenues. Broadcom’s networking portfolio, which comprises Tomahawk switches, Jericho routers and NICs, is helping it gain market share among hyperscalers.
However, Broadcom’s third-quarter fiscal 2025 guidance reflects sluggishness in server storage, wireless and industrial businesses. Third-quarter fiscal revenue guidance of $15.8 billion suggests 21% year-over-year growth but indicates modest sequential growth. Gross margin is expected to decline roughly 130 basis points sequentially, reflecting a higher mix of XPUs with AI revenues. A higher mix of lower-margin XPUs in the revenue mix is expected to keep gross margin under pressure throughout fiscal 2025.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.66 per share, down by a couple of cents over the past 30 days, indicating 333.87% year-over-year growth.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
So, what should investors do with the AVGO stock? Let’s find out.
Growing Portfolio, Rich Partner Base to Boost AVGO’s Prospects
Broadcom’s focus on delivering AI-powered, proactive security to stay ahead of evolving cyber threats has been noteworthy. In March, AVGO introduced updates to VMware vDefend, improving security planning, lifecycle management, and scalability for VMware Cloud Foundation with new tools like the Security Segmentation Assessment and Report, optimized micro-segmentation, and advanced Network Detection and Response, all aimed at improving threat prevention and operational efficiency. In April, Broadcom introduced Incident Prediction, which extends the security feature of Adaptive Protection, a unique capability of Symantec Endpoint Security Complete (SES-C).
Last month, Broadcom announced the general availability of VMware Cloud Foundation (VCF) 9.0. At the end of the fiscal second quarter, approximately 87% of the largest 10,000 customers have adopted VCF. The launch of the next-gen Tomahawk 6 switch is a game changer as it enables clusters of more than 100,000 AI accelerators to be deployed in only two tiers instead of three. Reduction in lower-tier offers lower latency, higher bandwidth and reduced power consumption that enables much better performance in training next-generation frontier models.
AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. It believes that by 2027, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric.
Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues. AVGO expects third-quarter fiscal 2025 AI revenues to jump 60% year over year to $5.1 billion.
Strong Liquidity Aids AVGO to be Shareholder Friendly
Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of May 4, 2025, cash and cash equivalents were $9.47 billion, and Broadcom generated $6.55 billion in cash flow from operations. Free cash flow was $6.41 billion and accounted for 43% of revenue at the end of the second quarter of fiscal 2025.
The strong balance sheet is helping AVGO lower leverage, pay consistent dividends and return cash to shareholders through buybacks. The company recently paid off $1.6 billion of debt, resulting in gross principal debt of $67.8 billion. Broadcom paid $2.8 billion of cash dividends and purchased $4.2 billion, or approximately 25 million shares of common stock, in the second quarter of fiscal 2025.
AVGO Shares Trading at a Premium
AVGO stock is trading at a premium, as suggested by the Value Score of D.
In terms of the forward 12-month Price/Sales, AVGO is trading at 18.13X, higher than the sector’s 6.65X, Rambus’ 9.57X and Marvell Technology’s 7.31X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. However, declining gross margin along with a challenging macroeconomic condition doesn’t justify the premium valuation.
Broadcom currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.