During the October 6 episode of Mad Money, a caller expressed frustration that Broadcom Inc. (NASDAQ:AVGO) had “hardly moved.” Jim Cramer responded:
Okay, Jeff Marks and I, you know, runs the Trust with me, we talk about it every day. I said, “Can you believe it? Broadcom is up.” And he said, “Yeah, it’s finally going up. It’s above where it was when it reported.” Now, what happens when you see that?… When you see that it’s now above where it was when it reported the so-called bad quarter, it means the prospects are probably better. Don’t sell it here. I did trim because we have so much of these, but I’m not going to sell the rest. I’d say ride it with me.
Cramer had already challenged the market’s reaction to Broadcom’s earnings in September. His earlier assessment of the selloff explained why he thought investors were placing too much weight on one part of its outlook. Broadcom also earned a place in our list of 10 Best AI Infrastructure Stocks to Buy for the Long Term. See which other stocks made the list.
Custom AI Chips Continue to Drive Growth
Broadcom Inc. reported fiscal third-quarter 2026 revenue of approximately $29.6 billion, up 86% year over year. AI semiconductor revenue increased 221% to $16.7 billion, with management pointing to demand for custom accelerators and networking products. Infrastructure software revenue also grew 29% to approximately $8.75 billion. Custom chips and networking give Broadcom two routes into AI infrastructure spending. Its inclusion in a broader selection of AI stocks places it along with companies pursuing other parts of that opportunity.
The company generated approximately $13.7 billion in free cash flow, equivalent to 46% of revenue. Adjusted earnings reached $3.32 per share, compared with GAAP earnings of $2.68. For the fourth quarter, management projected approximately $34.8 billion in total revenue, including $21.7 billion from AI semiconductors. These are substantial growth figures despite the disappointing stock reaction described by Cramer.
The Valuation Still Depends on Delivering Growth
Broadcom trades at approximately 21.7x forward earnings, compared with 19.6x for the semiconductor kingpin, NVIDIA. Broadcom also traded at approximately 11.5x forward sales versus NVIDIA’s 10.7x. NVIDIA provides a relevant AI semiconductor comparison, although Broadcom’s infrastructure software business makes their revenue and profit mixes different. Broadcom does not offer a clear valuation discount to this major AI peer. NVIDIA is one useful benchmark, but the AI investment universe extends well beyond the two chipmakers.
Broadcom Inc. identifies fluctuations in major customers’ orders and dependence on a limited number of suppliers as business risks. Its reliance on outsourced manufacturing also makes production capacity and accurate demand forecasts important.
Margin expectations deserve attention as well. Fourth-quarter adjusted operating margin guidance of approximately 66% is below the roughly 67.9% calculated from third-quarter adjusted operating income and revenue. It is important to know that higher sales do not necessarily mean a higher margin in every quarter.
Hedge Fund Participation Remains Broad
According to Insider Monkey, 170 hedge funds held Broadcom in Q2, down from 173 in Q1. With 15.13 million shares, Fisher Asset Management took the top spot among the 1000+ hedge funds tracked by Insider Monkey. Short interest stood at 1.11% of the float, highlighting limited short positioning relative to available shares.
Cramer has reduced his position, but he remains willing to hold the rest. Broadcom’s AI revenue and cash generation might be able to explain that confidence. With the stock still valued above NVIDIA on these forward measures, the next earnings reports will need to sustain the growth expectations behind it.
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