Broadcom Drops 11% Year to Date: Should You Buy the Stock on the Dip?

Broadcom AVGO shares have dropped 10.5% in the year-to-date period, outperforming the broader Zacks Computer and Technology sector’s fall of 11.5%, but underperforming the Zacks Electronics – Semiconductors industry’s decline of 5.5%. Although AVGO shares have been benefiting from rising AI revenues driven by strong demand for custom AI accelerators (XPUs), the lower margin chips are hurting the revenue mix. The sluggish non-AI revenue view for the second quarter of fiscal 2026 is a headwind for investors.So, what should investors do with the AVGO stock? Let’s find out.AVGO’s Gross Margin View UnimpressiveBroadcom’s gross margin has contracted sequentially in the trailing four quarters. In the first quarter of fiscal 2026, the company reported a gross margin of 77% compared with 77.9% reported in the fourth quarter of fiscal 2025, 78.4% reported in the third quarter of fiscal 2025, and 79.4% posted in the second quarter of fiscal 2025. On a year-over-year basis, the fiscal first-quarter gross margin contracted 210 basis points.Broadcom now expects the second-quarter fiscal 2026 gross margin to be 77%, flat sequentially. Unfavorable product mix due to higher Semiconductor Solution revenues in comparison to Infrastructure Software is expected to hurt gross margin in the near term.AVGO’s Strong AI Growth Boosts Competitive ProwessAVGO’s prospect benefits from rising AI revenues. Semiconductor business benefits from strong AI revenues, which surged 106% year over year in the first quarter of fiscal 2026. AI networking revenues grew 60% year over year and represented one-third of AI revenues, while AVGO’s revenues from XPUs jumped 140% year over year.The company’s strong portfolio is expected to help it steer off stiff competition from NVIDIA NVDA, Advanced Micro Devices AMD and Skyworks SWKS in the AI domain. NVIDIA is benefiting from strong demand for Hopper and Blackwell architectures, while AMD’s prospects are benefiting from strong demand for EPYC and Instinct processors. Skyworks is benefiting from growing demand for its solutions across edge IoT, automotive and infrastructure end markets, as well as the pending acquisition of Qorvo.AVGO Stock’s Price Performance Image Source: Zacks Investment Research Broadcom’s AI momentum is expected to continue, thanks to a clientele that includes Google, Meta Platforms and Anthropic. The company continues to gain market share in AI networking, driven by the first-to-market Tomahawk 6 switch at 100 terabit per second, as well as Broadcom’s 200G SerDes, which are capturing demand from hyperscalers. Tomahawk 6 delivers exceptional flexibility with support for 100G and 200G SerDes. It provides one of the industry’s most comprehensive sets of AI routing capabilities and interconnect options, built to handle the demand of AI clusters scaling beyond one million XPUs.An expanding portfolio bodes well for Broadcom’s prospects. At the 2026 Optical Fiber Communications Conference, the company introduced 3.5D XPU, 102.4T Ethernet switches with co-packaged optics, 400G/lane optical DSPs, 200G/lane Ethernet retimers and AECs, and PCIe Gen6 connectivity solutions. Broadcom also introduced Symantec CBX (Carbon Black XDR), a cloud-based platform that combines the best Symantec and Carbon Black technologies in one intuitive solution. CBX combines Symantec’s robust prevention, Adaptive Protection, Data Security, Cloud SWG and Incident Prediction features with Carbon Black’s EDR technology for deep visibility, exceptional threat detection and rapid response across attack surfaces.Broadcom expects a positive second-quarter fiscal 2026 performance, with AI revenues of $10.7 billion, suggesting a 140% year-over-year upsurge. AI networking is expected to accelerate in the second quarter of fiscal 2026 and grow to 40% of the total AI revenues. Semiconductor revenues are expected to be $14.8 billion, indicating 76% year-over-year growth. Broadcom expects revenues of $22 billion, indicating 47% year-over-year growth for the second quarter of fiscal 2026. For 2027, Broadcom expects AI revenues from chips to surpass $100 billion.AVGO’s Earnings Estimate Revision Shows Positive TrendThe Zacks Consensus Estimate for the second-quarter fiscal 2026 earnings is pegged at $2.35 per share, up 7.3% over the past 30 days, indicating 48.7% growth from the figure reported in the year-ago quarter. The consensus mark for the second quarter of fiscal 2026 revenues is pegged at $22.02 billion, suggesting 46.8% growth from the figure reported in the year-ago quarter. Broadcom Inc. Price and Consensus Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $11.19 per share, up 11.2% over the past 30 days, indicating 64.1% growth from the fiscal 2025 reported figure. The consensus mark for fiscal 2026 revenues is pegged at $101.38 billion, suggesting 58.7% growth from fiscal 2025’s reported number.Here’s Why You Should Buy AVGO Stock NowBroadcom shares are trading at a premium, as suggested by the Value Score of F. In terms of the forward 12-month price/sales (P/S), AVGO is trading at 12.05X, higher than the broader sector’s 5.48X and industry’s 6.7X. Broadcom is also trading at a premium against peers, NVIDIA, AMD and Skyworks, shares of which are currently trading at 11.47X, 6.76X and 2.1X, respectively.AVGO Shares Are Trading at a Premium Image Source: Zacks Investment Research Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. This justifies AVGO’s premium valuation.Broadcom currently sports a Zacks Rank #1 (Strong Buy), which implies that investors should start accumulating the stock right now. You can see the complete list of today’s Zacks #1 Rank stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Skyworks Solutions, Inc. (SWKS): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks