Future Prospects for Broadcom Stock in 3 Years

Broadcom (AVGO) has shown remarkable growth over the past three years, with its stock price soaring by an extraordinary 240%. This impressive performance has far outpaced the PHLX Semiconductor Sector index, which saw a gain of just 27% in the same time frame.

As investors look ahead, many are curious whether Broadcom can maintain this momentum over the next three years, especially after such solid gains. This article will explore the possible growth drivers for Broadcom going forward, evaluate its potential for further appreciation, and assess its current valuation to determine whether it remains an attractive investment choice.

Key Growth Factors for Broadcom

Broadcom recently reported strong financial results for the fourth quarter of fiscal 2024, ending November 3. The company achieved record annual revenues of $51.6 billion, a 44% increase from the previous year. When excluding the impact of its VMware acquisition, Broadcom reported an organic revenue growth of 9%.

In terms of earnings, Broadcom's non-GAAP earnings per share reached $4.87, a 15% rise compared to the previous year. Positive news continues as the company forecasts strong growth for the first quarter of fiscal 2025, projecting revenues of $14.6 billion, which represents a 22% year-over-year increase.

Although Broadcom has not provided specific full-year guidance, analysts anticipate revenues will grow by nearly 19% in the current fiscal year, reaching approximately $61.1 billion. Furthermore, expectations are for continued growth in the following years, with estimates around 15% growth each year.

The projections for Broadcom's revenue have significantly increased due to the rising demand for its artificial intelligence (AI) chips. These chips are in high demand for data center applications, particularly for AI model training and inference, as well as enhancing the speed of server interconnectivity for AI tasks.

In fiscal 2024, Broadcom's AI revenue experienced outstanding growth of 220%, totaling $12.2 billion. The company anticipates continued momentum in this area, forecasting a 65% increase in AI chip sales for the current quarter to $3.8 billion. Furthermore, two additional hyperscale clients have chosen Broadcom's custom AI processors, expanding its market potential.

During the earnings call, Broadcom management indicated that the market for its custom AI accelerators and networking chips could grow to between $60 billion and $90 billion by fiscal 2027. If the market settles at around $75 billion, and Broadcom maintains a 50% market share, its AI revenue could potentially reach $37.5 billion by fiscal 2027—almost triple its previous year’s revenue. If the market expands to $90 billion and Broadcom holds a 60% market share, AI-related sales could exceed $50 billion.

Investment Considerations for Broadcom

Currently, Broadcom trades at a forward earnings multiple of 35, which seems reasonable when compared to the Nasdaq-100 index, which shares a similar price-to-earnings ratio. Additionally, Broadcom's price/earnings-to-growth (PEG) ratio stands at 0.63, suggesting that the stock is undervalued relative to its expected earnings growth over the next five years. A PEG ratio under 1 typically signals a stock's attractiveness.

For investors interested in acquiring a well-valued AI stock with significant growth prospects over the next three years, Broadcom appears to be a solid choice to add to their portfolios. The company seems well-positioned to maintain its impressive upward trajectory.

Broadcom, Stock, Investment