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AVGO Stock Drops 20% From 52-Week High: Should You Buy on the Dip?
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Key Takeaways
AVGO shares fell nearly 20% from their high after issuing soft gross margin guidance for fiscal 2026.
AI revenues surged 74% YoY in Q4, with a $21B order from Alphabet driving XPU momentum.
AVGO's total backlog hit $162B in FY25, including $73B in AI, with strong demand for Tomahawk 6.
Broadcom (AVGO - Free Report) shares closed at $326.02 on Wednesday, down 19.7% from the 52-week high of $414.61, it hit on Dec.10. The decline can be attributed to AVGO’s soft gross margin guidance for fiscal 2026 due to higher AI mix in the revenue as well as higher tax rate due to the impact of global minimum tax and shift in geographic mix of income as compared with fiscal 2025. The first-quarter fiscal 2026 guidance also reflects the negative impact of unfavorable AI mix in revenues, a sequential decline in non-AI semiconductor revenues and modest growth expectations for the Infrastructure Software segment. However, does this dip in AVGO shares offer a buying opportunity? Let’s find out.
AVGO Prospects Ride on Strong AI Revenues
AVGO is benefiting from strong demand for XPUs, which are a type of application-specific integrated circuits necessary to train Generative AI models. They require complex integration of compute, memory and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Alphabet (GOOGL - Free Report) and Meta Platforms are major users of these XPUs. In fiscal 2025, AI revenues surged 65% to $20 billion from fiscal 2024. Broadcom’s current order backlog for AI switches exceeds $10 billion as AVGO’s latest 102-terabit per second Tomahawk 6 switch continues to gain traction.
Broadcom’s XPUs are gaining traction. In the fourth quarter of fiscal 2025, AI revenues surged 74% year over year to $6.5 billion. XPU adoption accelerated in the reported quarter as enterprises continue to use these to train their large language models (LLMs) and monetize their platforms through inferencing APIs and applications. AVGO’s expanding clientele, which now includes Anthropic, is driving growth. In the third quarter of fiscal 2025, Broadcom received a $10 billion order to sell Alphabet’s latest TPU Ironwood racks to Anthropic. In the fourth quarter of fiscal 2025, Broadcom received an additional order worth $11 billion from the same customer. AVGO now expects first-quarter fiscal 2026 AI revenues to double year over year to $8.2 billion.
In fact, strong demand for XPUs, an innovative product portfolio, and an expanding partner base have helped Broadcom outperform the broader Zacks Computer and Technology sector as well as peers including NVIDIA (NVDA - Free Report) and Marvell Technology (MRVL - Free Report) . In the trailing 12 months, AVGO shares have appreciated 49.3%, outperforming the broader sector’s return of 21.2%. While shares of NVIDIA have returned 30.9%, Marvell Technology fell 25.1% in the past year.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Strong Portfolio & Rich Partner Base Drives AVGO’s Top Line
Consolidated backlog hit $162 billion in fiscal 2025, including $73 billion in AI backlog set to be delivered over the next 18 months. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 6 products, as well as the Jericho 4 Ethernet fabric router.
AVGO expanded its portfolio with the launch of the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients. Tomahawk 6 - Davisson (TH6-Davisson), the company’s third-generation Co-Packaged Optics Ethernet switch, is now being shipped. TH6-Davisson is specifically designed for the accelerating demands of AI networking, as it delivers an unprecedented 102.4 terabits per second of optically enabled switching capacity.
In August, Broadcom announced the Jericho 4 Ethernet fabric router that has the ability to interconnect more than one million XPUs across multiple data centers. In October, the company announced Thor Ultra, the industry’s first 800G AI Ethernet Network Interface Card, capable of interconnecting hundreds of thousands of XPUs to drive trillion-parameter AI workloads. AVGO also announced the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients.
Moreover, Broadcom has a rich partner base that includes the likes of OpenAI, Walmart, NVIDIA, Canonical, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper, Supermicro, among others. AVGO expects first-quarter fiscal 2026 Semiconductor revenues of $12.3 billion, suggesting 50% year-over-year growth. Infrastructure Software revenues are expected to grow 2% year over year to $6.8 billion.
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $9.88 per share, up 8.1% over the past 30 days, indicating 44.9% growth from fiscal 2025’s reported figure. The consensus mark for fiscal 2026 revenues is currently pegged at $92.51 billion, suggesting 44.8% growth from fiscal 2025’s reported figure.
The Zacks Consensus Estimate for the first quarter of fiscal 2026 earnings is pegged at $2.01 per share, up six cents over the past 30 days, indicating 25.6% growth from the figure reported in the year-ago quarter. The consensus mark for the first quarter of fiscal 2026 revenues is currently pegged at $19.23 billion, suggesting 29% growth from the figure reported in the year-ago quarter.
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 17.26X, higher than the sector’s 6.37X, NVIDIA’s 14.33X, and Marvell Technology’s 7.12X.
AVGO’s Valuation
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. These are good reasons to buy the stock for investors and justifies the premium valuation.
Image: Bigstock
AVGO Stock Drops 20% From 52-Week High: Should You Buy on the Dip?
Key Takeaways
Broadcom (AVGO - Free Report) shares closed at $326.02 on Wednesday, down 19.7% from the 52-week high of $414.61, it hit on Dec.10. The decline can be attributed to AVGO’s soft gross margin guidance for fiscal 2026 due to higher AI mix in the revenue as well as higher tax rate due to the impact of global minimum tax and shift in geographic mix of income as compared with fiscal 2025. The first-quarter fiscal 2026 guidance also reflects the negative impact of unfavorable AI mix in revenues, a sequential decline in non-AI semiconductor revenues and modest growth expectations for the Infrastructure Software segment. However, does this dip in AVGO shares offer a buying opportunity? Let’s find out.
AVGO Prospects Ride on Strong AI Revenues
AVGO is benefiting from strong demand for XPUs, which are a type of application-specific integrated circuits necessary to train Generative AI models. They require complex integration of compute, memory and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Alphabet (GOOGL - Free Report) and Meta Platforms are major users of these XPUs. In fiscal 2025, AI revenues surged 65% to $20 billion from fiscal 2024. Broadcom’s current order backlog for AI switches exceeds $10 billion as AVGO’s latest 102-terabit per second Tomahawk 6 switch continues to gain traction.
Broadcom’s XPUs are gaining traction. In the fourth quarter of fiscal 2025, AI revenues surged 74% year over year to $6.5 billion. XPU adoption accelerated in the reported quarter as enterprises continue to use these to train their large language models (LLMs) and monetize their platforms through inferencing APIs and applications. AVGO’s expanding clientele, which now includes Anthropic, is driving growth. In the third quarter of fiscal 2025, Broadcom received a $10 billion order to sell Alphabet’s latest TPU Ironwood racks to Anthropic. In the fourth quarter of fiscal 2025, Broadcom received an additional order worth $11 billion from the same customer. AVGO now expects first-quarter fiscal 2026 AI revenues to double year over year to $8.2 billion.
In fact, strong demand for XPUs, an innovative product portfolio, and an expanding partner base have helped Broadcom outperform the broader Zacks Computer and Technology sector as well as peers including NVIDIA (NVDA - Free Report) and Marvell Technology (MRVL - Free Report) . In the trailing 12 months, AVGO shares have appreciated 49.3%, outperforming the broader sector’s return of 21.2%. While shares of NVIDIA have returned 30.9%, Marvell Technology fell 25.1% in the past year.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Strong Portfolio & Rich Partner Base Drives AVGO’s Top Line
Consolidated backlog hit $162 billion in fiscal 2025, including $73 billion in AI backlog set to be delivered over the next 18 months. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 6 products, as well as the Jericho 4 Ethernet fabric router.
AVGO expanded its portfolio with the launch of the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients. Tomahawk 6 - Davisson (TH6-Davisson), the company’s third-generation Co-Packaged Optics Ethernet switch, is now being shipped. TH6-Davisson is specifically designed for the accelerating demands of AI networking, as it delivers an unprecedented 102.4 terabits per second of optically enabled switching capacity.
In August, Broadcom announced the Jericho 4 Ethernet fabric router that has the ability to interconnect more than one million XPUs across multiple data centers. In October, the company announced Thor Ultra, the industry’s first 800G AI Ethernet Network Interface Card, capable of interconnecting hundreds of thousands of XPUs to drive trillion-parameter AI workloads. AVGO also announced the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients.
Moreover, Broadcom has a rich partner base that includes the likes of OpenAI, Walmart, NVIDIA, Canonical, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper, Supermicro, among others. AVGO expects first-quarter fiscal 2026 Semiconductor revenues of $12.3 billion, suggesting 50% year-over-year growth. Infrastructure Software revenues are expected to grow 2% year over year to $6.8 billion.
AVGO’s Earnings Estimate Revision Shows Positive Trend
The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $9.88 per share, up 8.1% over the past 30 days, indicating 44.9% growth from fiscal 2025’s reported figure. The consensus mark for fiscal 2026 revenues is currently pegged at $92.51 billion, suggesting 44.8% growth from fiscal 2025’s reported figure.
The Zacks Consensus Estimate for the first quarter of fiscal 2026 earnings is pegged at $2.01 per share, up six cents over the past 30 days, indicating 25.6% growth from the figure reported in the year-ago quarter. The consensus mark for the first quarter of fiscal 2026 revenues is currently pegged at $19.23 billion, suggesting 29% growth from the figure reported in the year-ago quarter.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
AVGO Shares Are Overvalued
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 17.26X, higher than the sector’s 6.37X, NVIDIA’s 14.33X, and Marvell Technology’s 7.12X.
AVGO’s Valuation
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. These are good reasons to buy the stock for investors and justifies the premium valuation.
Broadcom currently carries a Zacks Rank #2 (Buy), which implies that investors should start accumulating the stock right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.