Should You Buy Broadcom Stock Before Sept. 4? Here's What History Shows.

Key Points

• Broadcom stock has been on a blistering run over the past year, climbing 79%.

• The company's thriving artificial intelligence (AI) semiconductor and networking business has driven an enviable increase in sales and profits.

• Broadcom's upcoming quarterly results will be a critical moment for the heavy hitter.

• 10 stocks we like better than Broadcom ›

It may come as a surprise to some investors that Broadcom (NASDAQ: AVGO) plays a crucial role in technology. The company provides a wide array of products that underpin tech infrastructure, and the rapid adoption of artificial intelligence (AI) has played to Broadcom's strengths.

Shareholders have profited from its response to this paradigm shift in technology, which has fueled an increase in both revenue and profits, sending the stock on a blistering run higher. Over the past three years, Broadcom has gained 442% (as of this writing), while increasing 79% over the preceding 12 months.

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Broadcom is scheduled to report its fiscal 2025 third-quarter results after the market close on Thursday, Sept. 4, marking a critical juncture for the company. Given the stock's relentless run over the past year, should investors buy the stock ahead of the results in hopes of additional gains, or wait until after the report is made public?

Let's take a look back at history to see what we can learn.

Image source: Getty Images.

Laying the groundwork

Broadcom is primarily known for its semiconductor business, but that sells the company far short. It offers a diverse range of software, semiconductor, and security products that serve the mobile, broadband, cable, and data center spaces. On Broadcom's website, the company boasts that "99% of all internet traffic crosses through some type of Broadcom technology."

The advancements resulting from generative AI marked a turning point for the company, as this groundbreaking technology increased the demand for Broadcom's data center products and expertise. The company's application-specific integrated circuits (ASICs) are custom-designed to reduce energy consumption in the processing of AI workloads, which has become a key consideration for data center operators and cloud infrastructure providers alike. Add in the company's networking solutions, and the appeal is clear.

The AI revolution has been a boon to Broadcom. In the second quarter (ended May 4), the company generated revenue that climbed 20% to $15 billion, resulting in adjusted earnings per share (EPS) that jumped 44% to $1.58. Management left no doubt that the impressive growth was fueled by increasing demand for AI, as AI-related revenue soared 46% to $4.4 billion, marking its ninth successive quarter of growth. The company also noted that while revenue from AI chips rose by double digits, sales of AI networking solutions surged 70%.

Broadcom expects its AI-fueled growth to continue. For the third quarter, management is forecasting revenue of $15.8 billion, representing 21% growth, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of approximately $10.43 billion, a 27% increase.

Let's not forget Broadcom's modest dividend, though it has taken a back seat to the company's impressive capital gains. Shareholders are paid $0.59 per share per quarter, which works out to a yield of about 0.8%. Given its payout ratio of 63% and fast-growing profits, Broadcom appears poised to add to its 15 consecutive years of dividend increases.

Should you buy Broadcom before Sept. 4?

The chart illustrates Broadcom's stock price movements over the past three years. The blue circles with the letter E at the center signify when the company reported its financial results. In the majority of these instances, or 58% of the time, the stock price rose as investors piled into the stock following the earnings announcement.

Many of these moves higher were fueled by better-than-expected results, increases to Broadcom's full-year forecast, and excitement about the state of AI. Yet even in those instances when the results were initially panned, investors considered the company's strong track record of growth, consistent execution, and pivotal role in the tech space before reversing course and bidding the stock higher.

Data source: The Motley Fool.

The fine print

To be clear, there's no way of telling how investors will react on a particular day, which is why I don't generally recommend date-driven investing. Furthermore, while sentiment tends to drive stocks over the short term, it's operational and financial performance that fuel long-term gains, and Broadcom's track record is clear.

Wall Street is also bullish on Broadcom's prospects. Of the 42 analysts who have offered an opinion in August, 39 -- or a whopping 93% -- rate the stock a buy or strong buy, and only one recommends selling.

HSBC analyst Frank Lee recently became the biggest Broadcom bull, upgrading the stock to buy, while assigning a Street-high price target of $400. This represents potential upside of 36% compared to the stock's closing price on Monday. The analyst cites Broadcom's critical role in AI infrastructure as a catalyst, saying he expects the company's growth to continue accelerating over the next 24 months as additional hyperscale operators adopt its customized AI chips.

At 36 times next year's expected earnings, Broadcom is selling for a premium. However, a quick look at Broadcom's chart shows that it's clearly deserved. During the past five- and 10-year periods, the stock has increased by 788% and 2,650%, respectively. This suggests that it doesn't matter when you buy Broadcom stock, as long as you do.

Should you invest $1,000 in Broadcom right now?

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HSBC Holdings is an advertising partner of Motley Fool Money. Danny Vena has positions in Broadcom. The Motley Fool recommends Broadcom and HSBC Holdings. The Motley Fool has a disclosure policy.