Broadcom Rides on Strong Demand for XPUs: Time to Buy the Stock?

Broadcom AVGO is benefiting from strong demand for networking products and custom AI accelerators (XPUs). In fiscal 2024, AI revenues jumped 220% over fiscal 2023 to $12.2 billion and represented 41% of semiconductor revenues. XPUs are necessary to train Generative Artificial Intelligence (GenAI) models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Broadcom strengthened its AI portfolio with the launch of the industry’s first Face-to-Face (F2F) 3.5D XPUs. 3.5D integration combines 3D silicon stacking with 2.5D packaging. Broadcom’s F2F offers better interconnect density (seven times increase in signal density) and power efficiency (10 times reduction in power consumption in die-to-die interfaces) compared with the Face-to-Back approach.AVGO’s innovative portfolio is a key catalyst. The company’s next-generation 3-nanometer XPUs are the first of its kind to market in that process node. Broadcom is on track for volume shipment at hyperscale customers in the second half of fiscal 2025.AVGO Shares to Ride on Strong PortfolioBroadcom, along with NVIDIA NVDA, AMD, Amphenol, Microsoft MSFT, Alphabet GOOGL and Oracle, dropped significantly after Chinese AI company DeepSeek showcased models that cost a fraction of what U.S. tech giants are spending on model development.NVIDIA plunged roughly 17% (approximately $593 billion) on Jan. 27, 2025. Broadcom, AMD, Amphenol, Microsoft, Alphabet and Oracle fell 17.4%, 6.37%, 12.57%, 2.14%, 4.2% and 13.79%, respectively.However, since then, AVGO has been at the forefront of the recovery, with shares rising 16.9%, trailed by NVIDIA, Oracle and Amphenol, shares of which have gained 10.5%, 8.8% and 3.3%, respectively. Alphabet and Microsoft have lost 4.3% and 5.9%, respectively, over the same time frame.Strong demand for Broadcom’s application-specific integrated chips (ASICs), designed to support AI and machine learning and make these tasks more efficient, aids top-line growth. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.The acquisition of VMware has benefited Infrastructure software solutions. Since closing the acquisition, AVGO added more than 4500 of its largest 10,000 customers to VMware Cloud Foundation, which enables enterprises to deploy private cloud environments on-prem.Broadcom’s strong partner base, including Arista Networks, DELL, Juniper and Supermicro, has been a key catalyst.AVGO Outperforms Sector Image Source: Zacks Investment Research AI Focus to Boost Broadcom’s ProspectsIn the fourth quarter of fiscal 2024, networking revenues, which represented 76% of networking, surged 158% year over year. AI XPU shipments doubled to AVGO’s three hyperscale customers, and it saw four times growth in AI connectivity revenues, driven by Tomahawk and Jericho shipments globally. For the first quarter of fiscal 2025, AVGO expects the momentum in AI connectivity to remain strong as more hyperscalers deploy Jericho3-AI in their fabrics. Broadcom expects first-quarter fiscal 2025 AI revenues to grow 65% year over year to $3.8 billion. AVGO sees massive opportunities in the AI space as specific hyperscalers have started to develop their own XPUs. It believes that by 2027, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric. Serviceable Addressable Market for XPUs and network are expected between $60 billion and $90 billion in fiscal 2027 alone.AVGO’s Earnings Estimate Revision Shows Upward TrendThe Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $6.31 per share, up by a penny over the past 30 days, indicating 29.57% year-over-year growth.The consensus estimate for fiscal first-quarter earnings is pegged at $1.50 per share, unchanged over the past 30 days, indicating 36.36% year-over-year growth.AVGO’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.57%. Broadcom Inc. Price and Consensus Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote Find the latest EPS estimates and surprises on Zacks Earnings Calendar.AVGO Shares Trading at a PremiumAVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.In terms of the forward 12-month Price/Sales, AVGO is trading at 17.43X, higher than its median of 13.05X and the sector’s 8.43X.Price/Sales Ratio (F12M) Image Source: Zacks Investment Research ConclusionBroadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. We believe these factors justify the premium valuation.Broadcom currently has a Zacks Rank #2 (Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant 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 Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks