Buy or Sell Broadcom Stock?

Broadcom (NASDAQ: AVGO) just took a 15% hit in a week, dropping to around $340. The culprit? Management warned that ramping up sales of custom AI processors—which carry lower margins—will compress the company’s overall gross margins next quarter. Investors panicked, worried that the AI gold rush might not be as profitable as Broadcom’s traditional software business.
But here’s the thing: despite this sharp drop, AVGO is still up 47% year-to-date. So what should you do now?

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Is This Really About Margins, or Just Growing Pains?

Let’s be honest—margin compression sounds scary. But look at what Broadcom is actually doing here. The company posted a 39% operating margin over the last four quarters, better than the S&P 500’s 37.5%. Its net income margin sits at 31.6% versus 27.6% for the broader market. These aren’t the numbers of a struggling business.

The real story is that Broadcom is scaling up a new, massive revenue stream in custom AI chips. Yes, these products have lower margins than legacy software. But they’re driving explosive growth—revenues jumped 28% to $60 billion over the last twelve months, with the most recent quarter showing 22% year-over-year growth.

So the question isn’t whether margins will dip slightly. It’s whether you believe the AI buildout is real and sustainable.

What Are You Actually Paying For?

Here’s where things get tricky. AVGO trades at a price-to-earnings ratio of 68.2x versus 37.5x for the S&P 500. The price-to-sales ratio is 21.5x compared to 11.4x for the market. By traditional metrics, this stock is expensive—very expensive.

But expensive compared to what? Broadcom has grown revenues at 24% annually over the past three years while the S&P managed 12.2%. The company generated $25 billion in operating cash flow with a 42.4% OCF margin, again beating the market’s 35.5%. If you’re paying a premium, at least you’re getting premium performance.

Can Broadcom Handle the Volatility?

Let’s talk about risk. AVGO has proven it can weather storms better than most. During the 2022 inflation shock, it fell 36.7% but fully recovered by May 2023. During the COVID crash in 2020, it dropped 48.3% but bounced back by August of that year. The stock hit $412.97 just days ago on December 10th.

The company’s balance sheet is rock solid too. With a debt-to-equity ratio of just 5% versus the S&P’s 2.7%, Broadcom has minimal leverage relative to its $1.7 trillion market cap. It’s not overleveraged and vulnerable to a downturn.

So, Buy or Sell at $340?

Here’s the honest answer: AVGO is attractive but volatile—a tricky pick right now.

If you believe in the AI infrastructure buildout and can stomach the swings, this pullback might be an opportunity. The company’s growth trajectory is undeniable, its financial position is strong, and the market is overreacting to a near-term margin issue that’s really just a side effect of scaling a high-growth business.

But if you’re looking at that 68x P/E ratio and feeling queasy, you’re not wrong either. The valuation leaves zero room for error. Any disappointment—whether it’s slower AI chip adoption, competitive pressure, or macro headwinds—could trigger another sharp decline.

The safest conclusion? AVGO isn’t a stock for the faint of heart. It’s a bet on sustained AI infrastructure spending and Broadcom’s ability to dominate that space. If you buy at $340, do it with the understanding that this ride could get bumpy—but the long-term destination might be worth it.

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