Could This AI Pick Surge 700% in 3 Years?

Broadcom's (NASDAQ: AVGO) stock has surged more than 700% over the past three years. Most of that growth was fueled by its brisk sales of artificial intelligence (AI) chips.

Unlike Nvidia, which produces the powerful data center GPUs used to process AI tasks, Broadcom sells a broader range of networking, optical, and custom accelerator chips to support those AI applications. As those chips accounted for a growing percentage of its top line, its growth accelerated and its stock skyrocketed.

But could Broadcom's stock soar another 700% over the next three years? Let's review its current growth trajectory, its upcoming catalysts, and its valuations to decide.

Image source: Getty Images.

What happened to Broadcom over the past three years?

In 2016, Avago Technologies acquired the original Broadcom and inherited its brand. As a combined company, the "new" Broadcom became a top producer of wireless, storage, networking, optical, radio frequency, and multimedia chips for the enterprise, industrial, and mobile markets. Like Nvidia, Broadcom is a fabless chipmaker that outsources its production to leading foundries like Taiwan Semiconductor Manufacturing, Samsung, and GlobalFoundries.

Broadcom subsequently built an infrastructure software business by acquiring the enterprise software provider CA Technologies in 2018, Symantec's enterprise security unit in 2019, and the cloud software giant VMware in 2023. That expansion reduced its exposure to the cyclical semiconductor market, and to Apple, its top chip customer. Apple accounted for 20% of Broadcom's revenue in fiscal 2022 and fiscal 2023 (which ended in November 2023).

In fiscal 2024, Broadcom generated 58% of its revenue from its semiconductor solutions segment, while the remaining 42% came from its newer infrastructure software segment. That unique diversification differentiates it from other semiconductor makers or software companies. Over the past three years, Broadcom's revenue, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and free cash flow (FCF) improved consistently.

Data source: Broadcom. FY = fiscal year.

In fiscal 2023, its growth cooled off as its non-AI markets faced tougher macro headwinds than its AI-driven ones. But in fiscal 2024, its growth accelerated again as it fully integrated its acquisition of VMware and its AI chip sales heated up again. For the full year, its sales of AI-oriented chips surged 220% and accounted for 24% of its top line.

What will happen to Broadcom over the next three years?

For fiscal 2025, Broadcom expects its AI chip sales to surge 63% to $19.9 billion, or 31% of its projected revenue. Analysts expect its total revenue to rise 23% to $63.3 billion as its adjusted EBITDA grows 31% to $41.8 billion. But with an enterprise value of $1.76 trillion, it doesn't look cheap at 28 times this year's sales and 42 times its adjusted EBITDA.

From fiscal 2024 to fiscal 2027, analysts expect its revenue and adjusted EBITDA to increase at compound annual growth rates (CAGRs) of 29% and 31%, respectively. That growth should be fueled by the growth of its AI chip business and the stabilization of its non-AI chip and software segments. It expects those weaker businesses to firm up again in the second half of fiscal 2026. It will also likely continue to acquire more chipmakers and software makers to expand its sprawling business.

Assuming Broadcom matches analysts' expectations through fiscal 2027, grows its adjusted EBITDA by another 20% in fiscal 2028, and trades at a more reasonable 30 times its current year's adjusted EBITDA, its stock might rise about 50% over the next three years. That could easily beat the S&P 500's average annual return of 10%, but it wouldn't come anywhere close to replicating its 700% gain over the past three years.

Broadcom's stock is still a well-balanced play on the expanding AI market, but investors should maintain realistic expectations and realize that a lot of its future growth has already been baked into its high-flying shares.

Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.