Broadcom: A Strong Bet for Future Growth Amid Market Challenges
When exploring stocks with significant upside potential for the coming years, Broadcom (NASDAQ: AVGO) stands out. Despite facing a market sell-off and a 20% decline in 2025, the chipmaker has seen over 45% growth in the past year.
Here’s why Broadcom’s stock could double or more in the next three years.
A Vast AI Opportunity
Broadcom operates in two main areas: semiconductor solutions and infrastructure software.
Initially focused solely on hardware, the company expanded into software through strategic acquisitions, including CA Technologies, Symantec, and VMware. CA Technologies added a significant portfolio of enterprise software, while Symantec enhanced its enterprise security offerings. The most notable acquisition was VMware, purchased in November 2023 for $69 billion. VMware is a leader in virtualization and cloud computing, allowing multiple virtual machines to run on one server, effectively reducing costs for customers.
Broadcom aims to restructure VMware by streamlining operations and shifting customers from perpetual licenses to a subscription model. By the end of its fiscal first quarter, 60% of its customers had transitioned to subscriptions. This shift has led Broadcom to upsell customers from its compute virtualization product, vSphere, to VMware Cloud Foundation (VCF).
Consequently, Broadcom’s infrastructure software revenue surged 47% to $6.7 billion last quarter, with a forecasted growth of 23% for the next fiscal quarter. As businesses increasingly adopt hybrid cloud environments for AI workloads, Broadcom’s software segment is poised for sustained growth.
On the hardware front, Broadcom manufactures components for various sectors, including wireless devices and automotive. Its most critical segments are networking and application-specific integrated circuits (ASICs).
In the networking domain, Broadcom produces components such as Ethernet switches, optical receivers, digital signal processors (DSPs), and network interface cards (NICs). These components are essential for AI infrastructure. Ethernet switches facilitate rapid data exchange among AI chips, while optical receivers and DSPs enable data transmission over long distances. Meanwhile, NICs connect servers to networks, helping manage data flow and optimize AI workload distribution across servers.
As AI chip clusters grow and become more complex, the significance of these components will only increase.
With the expanding size of AI chip clusters, Broadcom’s networking division has promising growth prospects. However, its ASICs division presents the most substantial opportunity, enabling customers to design custom AI chips tailored for specific tasks.
Custom AI chips outperform mass-market GPUs from Nvidia in performance and power efficiency, though they come with significant upfront costs and longer design times. With Nvidia’s GPU prices soaring, more companies are turning to Broadcom for custom AI chip solutions. These chips’ energy efficiency can ultimately lower the total cost of ownership.
Broadcom’s initial custom AI chip client was Alphabet, for whom it developed the Tensor Processing Unit (TPU). These chips optimize AI workloads within Google Cloud’s TensorFlow framework, proving successful in reducing costs. Broadcom’s success with Alphabet has attracted numerous new custom AI chip clients. The company estimates its three most advanced AI chip customers represent a serviceable market potential of $60 billion to $90 billion by fiscal year 2027. Additionally, new custom AI chip clients—such as Apple—further enhance growth prospects, even if Broadcom doesn’t capture the entire market.
Image source: Getty Images
Why Broadcom’s Stock May More Than Double in Three Years
Broadcom generated $51.6 billion in revenue for fiscal 2024. If the company captures a portion of its custom AI chip potential—approximately $40 billion in additional revenue—while continuing VMware’s growth, it could surpass $100 billion in revenue by fiscal 2027. With a 75% gross margin and few additional expenses, this could translate to an extra $10 in earnings per share (EPS) added to the $4.87 in adjusted EPS reported for the fiscal year 2024.
Assuming some additional costs, we can estimate the fiscal 2027 EPS at around $14.50. With expected revenue growth of another $15 billion in fiscal 2028, that could bring future EPS to $16.75.
At a forward price-to-earnings (P/E) multiple of 25 times for the fiscal year 2028 EPS, the stock could be valued over $400 within three years. Currently, it trades at a forward P/E near 28 times, which suggests this multiple is reasonable.
Therefore, Broadcom’s stock has promising potential to more than double in the coming years, supported by increased revenue from custom AI chip and networking segments and the continued growth of VMware.
Considering a $1,000 Investment in Broadcom?
Before investing in Broadcom, it’s essential to weigh your options:
The Motley Fool Stock Advisor analyst team recommends top picks for investors, and Broadcom isn’t currently among them. The selected stocks may yield significant returns in the future.
Consider this: if you had invested $1,000 in Netflix when it was recommended on December 17, 2004, you would have $594,046 now!*
Similarly, a $1,000 investment in Nvidia when recommended on April 15, 2005, would be worth $680,390 today!*
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*Stock Advisor returns as of April 21, 2025.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
