What’s Behind The 500% Rise In Broadcom Stock?
Broadcom Inc. (NASDAQ: AVGO) has significantly outperformed the broader market in the last twelve months, with a roughly 50% rise compared to the S&P 500’s 15%. This strong performance has been driven by booming demand for its custom AI chips and AI networking solutions, as well as the successful integration and financial contribution of its VMware acquisition.
Despite this recent surge, the stock has delivered substantial long-term growth, soaring over 550% since early 2023. This impressive long-term rally is primarily the result of two key factors:
- The company’s price-to-sales (P/S) ratio saw a significant 369% increase, climbing from 6 in 2022 to the current 26.
- Revenue grew substantially by 92%, rising from $33 billion to $64 billion.
- These positive drivers were partially offset by a 15% increase in the total number of outstanding shares, which now stands at 4.7 billion.
Our dashboard – Why Broadcom Stock Moved – has more details. We will delve deeper into the specifics of these factors and the company’s valuation in the sections below. That being said, if you seek an upside with less volatility than holding an individual stock like AVGO, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 105% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio perfmance metrics. Separately, see – Can Archer Aviation Stock Double From Here?
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1. Why The Valuation Surged
The market repriced Broadcom from a mature semiconductor company to an AI infrastructure growth story. The company secured major deals, including a 10-gigawatt agreement with OpenAI announced in October 2025, positioning it as a critical supplier of custom AI accelerators to hyperscalers.
AI revenue has grown for thirteen consecutive quarters, with Q4 fiscal 2025 AI semiconductor revenue surging 74% year-over-year to $6.5 billion and full-year fiscal 2025 AI revenue reaching $20 billion, up 65% year-over-year. Management guided Q1 fiscal 2026 AI semiconductor revenue to $8.2 billion, effectively doubling from the prior year quarter, supported by a contracted AI backlog exceeding $73 billion to be delivered over approximately 18 months.
This transformation from a legacy chip maker to an essential AI infrastructure provider justified a substantial valuation premium, with the P/S ratio currently at approximately 26x compared to a five-year average of 10x. Our dashboard on Broadcom’s Valuation Ratios offers more details on Broadcom’s valuation multiples.
2. What’s Behind Revenue Growth?
Two major drivers powered the near-doubling of revenues:
- The VMware acquisition, completed in November 2024, contributed significantly to this growth, with the infrastructure software segment generating over $6 billion in quarterly revenue by mid-2025 compared to less than $2 billion before the acquisition, driven by Broadcom’s aggressive transition to subscription-based bundles.
- The second major driver was explosive AI semiconductor revenue growth, surging from $12.2 billion in fiscal 2024 to $20 billion in fiscal 2025, representing approximately 220% year-over-year growth followed by 65% growth, fueled by hyperscaler demand for custom AI accelerators and Ethernet networking solutions.
Together, these two growth engines transformed Broadcom from a traditional semiconductor company into a diversified AI infrastructure and enterprise software powerhouse, with AI semiconductors and VMware collectively representing the majority of revenue growth over this period.
3. Why Share Count Increased
The 15% increase in outstanding shares stems directly from the VMware acquisition financing. Broadcom offered VMware stockholders merger consideration in the form of cash and stock, issuing new shares as partial payment for the $69 billion transaction. This dilution was the price of rapidly scaling the business through acquisition rather than organic growth alone.
The Bottom Line
Currently trading around $350 per share following recent market volatility, Broadcom’s valuation reflects both the opportunities and risks inherent in its business model. The stock’s price-to-sales (P/S) ratio of approximately 26x based on trailing sales represents a premium to traditional semiconductor companies and is significantly higher than the stock’s own 10x average over the last five years.
However, this valuation premium appears justified given the company’s strong AI exposure and software transformation. With an average analyst price target of $460, AVGO stock still appears to have ample room for growth.
That said, our assessment could be wrong, and investors may not be willing to pay such a high multiple for AVGO, given its inherent risks. Key risks include customer concentration, cyclical semiconductor demand, and competitive pressures in the AI chip market. Investors should weigh all these risks carefully before buying AVGO stock. Also, see how AVGO stock’s valuation compares to that of its peers.
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