Up 500%, What’s Happening With AVGO Stock?

Broadcom Inc. (NASDAQ: AVGO) has significantly exceeded the broader market performance this year, with a year-to-date increase of about 46% compared to the S&P 500’s 14%. This robust performance has been fueled by strong quarterly outcomes and the acquisition of a new custom AI-chip client.

Despite this recent rise, the stock has shown considerable long-term growth, skyrocketing over 500% since early 2023. This remarkable long-term increase is primarily due to two crucial factors:

1. The company’s price-to-earnings (P/E) ratio experienced a substantial 276% rise, increasing from 14 in 2022 to the current 54.
2. Adjusted net income experienced significant growth of 91.5%, increasing from $16 billion to $31 billion.
3. These positive factors were partially countered by a 15% rise in the total number of outstanding shares, which now amounts to 4.9 billion.

We will explore the details of these factors and the company’s valuation in the sections that follow. Nevertheless, if you are looking for potential upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has consistently outperformed its benchmark—a mix of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns surpassing 91% since its launch. Why is that? As a collective, HQ Portfolio stocks delivered better returns with lower risk compared to the benchmark index; it was less of a turbulent experience, as illustrated in HQ Portfolio performance metrics.

1. Why the P/E Ratio Surged

The market reassessed Broadcom from a traditional semiconductor company to an AI infrastructure growth entity. The company secured significant agreements, including a $10 billion deal with OpenAI, establishing it as a vital supplier of custom AI accelerators to hyperscalers. AI revenue has expanded for eleven consecutive quarters, with Q3 2025 AI revenue skyrocketing 63% year-over-year to $5.2 billion. This evolution from a legacy chip manufacturer to an essential AI infrastructure supplier warranted a notable valuation premium, elevating the P/E from 14 to 54. Our dashboard on Broadcom’s Valuation Ratiosprovides additional insights on Broadcom’s other valuation multiples.

2. What’s Behind Higher Profitability

Two primary factors propelled the near doubling of adjusted net income:

• The VMware acquisition: Broadcom finalized its $69 billion acquisition of VMware in November 2023, instantly adding a high-margin software division to its portfolio. The company retains strong margins with 39% operating margin and 32% net margin. On an adjusted basis, the company’s LTM net margins are significantly higher at 51%.
• AI semiconductor boom: The surge in demand for custom AI chips has created substantial incremental revenue with favorable margins. Analysts project that custom silicon could yield $25-30 billion in revenue next year and surpass $40 billion by approximately 2027, greatly enlarging the earnings base.

3. Why Share Count Increased

The 15% rise in outstanding shares is directly attributed to the financing of the VMware acquisition. Broadcom offered VMware shareholders merger consideration in cash and stock, issuing new shares as part of the $69 billion transaction. This dilution was the cost of swiftly expanding the business through acquisition instead of solely relying on organic growth.

The Bottom Line

Currently trading around $340 per share following the recent market fluctuations, Broadcom’s valuation reflects both the opportunities and challenges inherent in its business model. The stock’s price-to-earnings (P/E) ratio of approximately 54x based on trailing adjusted earnings represents a premium in comparison to traditional semiconductor companies and is notably higher than the stock’s own average of 30x over the past three years.

Nonetheless, this valuation premium seems warranted given the company’s strong AI exposure and ongoing software transformation. With an average analyst price target of $370, AVGO stock still appears to have potential for growth.

That said, our assessment may not be accurate, and investors might not be inclined to pay such a high multiple for AVGO, considering its intrinsic risks. Primary risks include customer concentration, cyclical semiconductor demand, and competitive pressures in the AI chip sector. Investors should carefully evaluate all these risks before purchasing AVGO stock. Additionally, see how AVGO stock’s valuation compares to that of its peers.

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