Broadcom Inc. (NASDAQ:AVGO) shares jumped 3.7% on October 6, building on gains from earlier in the month. The push came from Marvell’s investor day. Its CEO said big cloud companies are leaning more on custom AI chips, which is exactly what Broadcom sells. On October 1, Reuters also reported that Broadcom agreed to lend Anthropic up to $42 billion to help it buy chips.
Even with the recent rally, the stock is up only about 8% this year, a modest gain for a business growing this fast. Broadcom is also featured among our 10 Best AI Stocks to Buy Before They Explode. But which spot does it hold among the other AI names?
Why I Think the Lag Is an Opportunity
Here’s what makes the gap so strange. Broadcom’s AI chip revenue jumped 221% to $16.7 billion last quarter. The company expects $21.7 billion in Q4 and $58 billion for the full year, up from its earlier $56 billion target. Management also thinks AI revenue can double again in fiscal 2027. I’d argue the stock price just hasn’t caught up with what the business is doing.
The concern some people have is the Anthropic deal. Lending a customer money to buy your chips does tie more growth to one company. But given that Broadcom generated $13.7 billion in free cash flow last quarter alone. However, the potential $42 billion financing commitment introduces substantial counterparty and concentration risks. The margin dip doesn’t worry me much either. Gross margin should slip to about 73% in Q4 as AI chips grow. But operating margin is expected to hold at 66%, and actual profits are climbing fast. Broadcom’s fundamentals are moving faster than its stock price, but does that make the shares a buy at current levels?
The Valuation Looks Better Than It First Appears
At first glance, Broadcom isn’t cheap. The forward non-GAAP P/E of 31.10x sits about 14% above its 5-year average, while the forward Price-to-sales ratio of 16.33x is about 25% above. The EPS outlook helps justify the premium. Analysts expect EPS to rise about 71% in fiscal 2026, 66% in 2027, 57% in 2028, and 34% in 2029. For a company worth over $1.7 trillion, that is an exceptional trajectory. Based on fiscal 2027 earnings, which better reflect the year ahead, the P/E drops to roughly 19x. By fiscal 2028, it falls to about 12x. But is Broadcom a better investment than Nvidia at these valuations? Our Nvidia vs. Broadcom comparison reveals which AI chip leader offers the stronger investment case. Overall, the premium looks well justified if the AI ramp holds.
Hedge funds mostly stayed put. Funds holding Broadcom slipped from 173 in Q1 to 170 in Q2, while their stakes fell from $32.8 billion to $29.1 billion.
Taking everything into consideration, I think it’s time to load up. The growth is right there in the numbers, and the stock hasn’t priced it in yet. If AI revenue doubles again next year as expected, today’s price could look like a bargain.
While we acknowledge the risk and potential of AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AVGO and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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