What Could Spark the Next Big Move In Broadcom Stock

Broadcom (AVGO) has demonstrated remarkable surges, with over 30% rallies in under two months occurring 16 times, including notable bursts in 2010 and 2024. Additionally, it has experienced more than 50% gains in brief periods, highlighting its potential for rapid appreciation. If similar conditions arise, Broadcom could again see swift, substantial advances that offer significant opportunities for investors.

Broadcom’s shares have surged over 100% this past year, propelled by insatiable AI demand for its custom chips and the seamless integration of VMware. With record Q3 revenues and robust Q4 guidance, the firm’s strategic wins, like securing substantial hyperscaler AI orders and expanding its cloud platform, suggest further upside potential as the AI infrastructure buildout intensifies and software recurring revenues solidify its dual-engine growth.

Triggers That Could Boost The Stock

• AI Chip Leadership: Broadcom’s custom AI accelerators (ASICs/XPUs), including a new $10B OpenAI order and partnerships with Google/Meta, are projected to drive FY26 AI revenue to $30-32B, propelling stock growth. Customer concentration risk is mitigated by an expanding client base.
• VMware Growth: Successful VMware integration, with over 90% of top customers on VCF subscriptions, creates a dual-engine for revenue. Expansion into advanced services and AI via VCF boosts recurring revenue, offsetting initial pricing concerns.
• Networking Leadership: Broadcom’s advanced networking (Tomahawk 6, Jericho4) is crucial for hyperscale AI clusters, with Ethernet AI networking surging >170% YoY. The roadmap to 1.6T switches solidifies its role, mitigating competition.

How Strong Are Financials Right Now

Below is a quick comparison of AVGO fundamentals with S&P medians.

• Revenue Growth: 28.0% LTM and 24.0% last 3-year average.
• Cash Generation: Nearly 41.6% free cash flow margin and 39.0% operating margin LTM.
• Valuation: Broadcom stock trades at a P/E multiple of 88.2

*LTM: Last Twelve Months | If you want more details, read Buy or Sell AVGO Stock.

Broadcom’s strong revenue growth and robust cash generation metrics reflect a fundamentally solid business with impressive operational efficiency. However, despite these strengths, it is important to also consider the potential risks associated with how the stock may behave during market downturns.

Risk Quantified

When looking at risk, it’s useful to see how AVGO holds up during big market sell-offs. In 2018, the stock dropped about 27% from peak to trough. The Covid pandemic hit it harder, with a nearly 48% plunge. During the inflation shock, the dip was around 35%. Even with strong fundamentals, AVGO isn’t immune to sharp declines when the broader market turns south. Good quality can cushion the fall, but downturns still sting.

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read AVGO Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Still not convinced about AVGO stock? Consider portfolio approach.

Stock Picking Falls Short Against Multi Asset Portfolios

Stocks can jump or crash but other assets move on different cycles. A multi asset portfolio helps you stay invested while cushioning swings in equities.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices