Cramer Names Broadcom “An Undervalued Stock”, Despite Recent Declines

Quick Read

• Broadcom (AVGO) is down 18% from December highs despite 106% AI revenue growth, a PEG ratio of 0.87, $8.01B free cash flow, a $10B buyback authorization, and analyst price target of $453.06.

• Jim Cramer argues the market has not caught up to Broadcom’s fundamentals, pointing to record earnings and elevated growth rates as evidence of undervaluation relative to the stock’s pullback.

• The analyst who called NVIDIA in 2010 just named his top 10 AI stocks. Get them here FREE.

Jim Cramer made his position clear on AVGO the morning after Broadcom’s Q1 fiscal 2026 earnings hit the tape: “This is an undervalued stock versus where people thought it was going to be.” The stock had just posted record quarterly revenue, AI sales more than doubled year-over-year, and management authorized a fresh $10 billion buyback. Yet the shares were still sitting roughly 18% below their December peak. Cramer’s read was that the market hadn’t caught up to the fundamentals. The question worth answering is whether the math supports him.

The Verdict: Cramer Is Right, But With a Catch

The case for undervaluation rests on a specific framework called the PEG ratio, which stands for Price-to-Earnings-to-Growth. It’s one of the most useful tools for evaluating whether a high-multiple growth stock is actually expensive or just looks that way. The formula divides the forward P/E ratio by the expected earnings growth rate. A PEG ratio below 1.0 is generally considered undervalued for a growth company. Above 2.0 typically signals that the market is pricing in perfection.

Broadcom’s numbers are striking on this measure. The stock’s forward P/E sits at 31.35, which sounds elevated until you factor in the growth rate. With Q1 AI revenue growing 106% year-over-year and total revenue up 29.5% in the most recent quarter, the earnings growth rate is running well ahead of the multiple. The result: a PEG ratio of 0.87, comfortably below 1.0. By this measure, Broadcom is not just reasonably priced for a high-growth semiconductor company — it’s cheap relative to its own growth trajectory.

READ: The analyst who called NVIDIA in 2010 just named his top 10 AI stocks

The catch Cramer acknowledged himself: macro conditions can override fundamentals in the short term. “I don’t know what’s going to happen with the war because if oil goes up, this thing goes down.” That’s an honest qualifier. A PEG ratio doesn’t protect you from a risk-off rotation or a sudden spike in energy prices compressing growth multiples across the board. But it does tell you that the business itself is not the problem.

What the Pullback Actually Represents

Broadcom peaked near $414 in late 2025 and has since pulled back to around $330, a decline of 18.47% from the December 11 close. That kind of drop on a company posting record results isn’t a business story — it’s a sentiment story. The market priced in aggressive expectations, the Q2 guidance of approximately $22.0 billion came in below the most optimistic analyst projections, and some investors rotated out.

The underlying business didn’t slow down. Free cash flow came in at $8.01 billion for the quarter, representing roughly 41% of revenue — an unusually high conversion rate that reflects how little incremental capital the business needs to grow.

That cash generation is what funds the $10 billion share repurchase program authorized on March 4, 2026, and it’s also what makes the consensus analyst price target of $453.06 plausible — roughly 37% above current levels. Of the 50 analysts covering the stock, 48 rate it a buy or strong buy, with zero sell ratings.

Cramer also pointed to analyst estimate revisions as a signal: “I saw one analyst, he raised his Broadcom 2027 estimates by 24%.” Forward estimate increases of that magnitude, driven by a single earnings print, are meaningful. They suggest the growth trajectory is being revised higher, not lower — which is the opposite of what a value trap looks like.

Who This Logic Works For — and Who Should Be Careful

An investor with a 3-to-5 year horizon who can tolerate semiconductor cyclicality is the profile where this analysis holds up cleanly. Broadcom’s AI revenue has grown from roughly $4.4 billion per quarter to a guided $10.7 billion in Q2 FY2026, and the company’s custom AI accelerator business is tied to hyperscale customers like Meta, Anthropic, and OpenAI. That’s not speculative demand — it’s contracted infrastructure buildout. The quarterly earnings growth rate of 188% year-over-year reflects that reality.

The investor who should be cautious is someone with a shorter time horizon or low tolerance for concentration risk. Broadcom generates enormous revenue, but a meaningful share of it comes from a small number of large customers. If one of those hyperscalers shifts its AI chip strategy — toward in-house silicon, for example — the revenue impact would be immediate and visible. The trailing P/E of 66.57 means there’s no margin of safety in the traditional value sense. The entire thesis depends on growth continuing at an elevated rate.

How to Evaluate This Yourself

The PEG ratio is the right starting point, but it requires an honest estimate of forward earnings growth. Broadcom’s current growth rate is elevated because AI infrastructure spending is in an early, aggressive phase. If that spending plateaus or slows, the PEG ratio will look less favorable quickly. Before buying on the Cramer thesis, run two scenarios: one where AI revenue growth continues at current rates through fiscal 2027, and one where it decelerates to 30-40% annually. In the first scenario, the forward multiple compresses significantly as earnings catch up to price. In the second, the stock is fairly valued but not cheap.

The $10 billion buyback is a concrete data point worth weighting. Management teams don’t authorize large repurchase programs when they believe the stock is overvalued. Combined with four consecutive quarters of EPS beats and a cash balance that grew 52% year-over-year to $14.17 billion, the financial profile supports the undervaluation argument — at least on a growth-adjusted basis.

Cramer’s call is grounded in the right framework. The PEG ratio, cash generation, and analyst consensus all point in the same direction — the risk here is macro and customer concentration, not the underlying business.

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