Sometimes in discussions about artificial intelligence (AI) hardware providers, Broadcom (NASDAQ:AVGO) gets left out of the conversation. Yet, it’s a mistake for technology investors to overlook Broadcom and AVGO stock.
Along with the potential for a Broadcom stock split, there may be a value proposition for investors here. In five years, unless there’s a catastrophic event, Broadcom shares could trade much higher than they do today.
If that happens, you’ll wish you had gotten in before the rocket ride started. When all is said and done, value investors should open their minds and consider AVGO stock a bargain even if it’s not immediately obvious.
Not an Obviously Attractive Stock
At first glance, some investors might not be immediately find Broadcom stock attractive. For one thing, the share price recently pulled back from nearly $415 to $340, representing a scary 18% drawdown.
That’s not necessarily a bad thing, though, if you’re a value investor looking to hold AVGO stock for five years. Maybe the 18% share-price correction was needed in order to bring Broadcom down to a low valuation.
This theory is difficult to support with old-school metrics, however. For example, Broadcom has a trailing 12-month price-to-earnings (P/E) ratio of 71x to 72x, which doesn’t look like a bargain.
Furthermore, Broadcom’s forward annual dividend yield of 0.76% probably won’t impress many income investors. Sometimes a share-price pullback will set the stage for a high dividend yield, but this apparently hasn’t happened with AVGO stock.
Broadcom’s Knockout Quarter
In order to justify a five-year buy-and-hold with Broadcom stock, the company really needs to demonstrate its growth potential. From a financial standpoint at least, Broadcom definitely checked the right boxes with its fourth-quarter fiscal year 2025 results.
Broadcom CEO Hock Tan had every right to brag when he announced the company’s record quarterly revenue of $18 billion, up 28% year over year. Tan further clarified that Broadcom’s revenue growth was “driven primarily by AI semiconductor revenue increasing 74%” year over year.
It’s difficult to extrapolate five years out, but clearly Broadcom’s growth trajectory is on a powerful uptrend. If you can believe it, Broadcom’s Q4 FY2025 GAAP-measured net income nearly doubled year over year, increasing 97% to $8.518 billion.
Also on a year-over-year basis, Broadcom’s free cash flow (FCF) grew 36% to $7.466 billion while the company’s adjusted EBITDA expanded 34% to $12.218 billion. Given these figures, it’s surprising that Broadcom isn’t a darling of the financial market.
So maybe value investors ought to be willing to overlook Broadcom’s seemingly high P/E ratio. Given AVGO stock’s five-year trajectory and the company’s growth pathway, a $500 share price in a couple of years and $800 in five years is entirely possible.
Great Expectations
Besides, even if the company doesn’t get all of the attention on Wall Street, Broadcom is a power player among AI hardware producers. To cite one example, Broadcom recently introduced the Brocade X8 Directors and Brocade G820 storage network products.
The company describes these products as the “industry’s first 128G Fibre Channel platforms designed for today’s mission-critical workloads and enterprise AI applications.” Only time will tell, but these could prove to be major revenue generators as Broadcom expands its array of enterprise AI hardware offerings.
Looking ahead, Broadcom anticipates $73 billion worth of AI product backlog over the next year and a half. Deliveries of these products, moreover, should drive 150% year-on-year AI revenue growth for Broadcom in fiscal year 2026.
Granted, these are only expectations and not all predictions work out as planned. Ultimately, Broadcom will only succeed and thrive over the next five years if enterprise AI product demand remains robust.
Could AVGO Stock Hit $800 in Five Years?
The point is that if you see an AI bubble and expect it to burst, then you probably shouldn’t buy and hold Broadcom stock. As the old saying goes, scared money doesn’t make money.
However, without an AI hardware market collapse, the runway is clear for AVGO stock to hit $800 in five years. Broadcom knocked it out of the part in Q4 FY2025, and the company’s AI product backlog prediction should boost investors’ confidence.
Therefore, it’s fine to keep track of Broadcom’s seemingly high P/E ratio and small dividend, but there’s no need to obsess over these figures. Instead, consider owning AVGO stock after the recent 18% dip and holding your Broadcom shares for five years or longer.