Broadcom Stock: A 3-Year Outlook

Broadcom Inc. (AVGO) has been a standout performer in the semiconductor industry, with its stock price soaring by an impressive 240% over the past three years. Investors may be wondering if this chipmaker can maintain its momentum and deliver more upside in the coming years. This article examines Broadcom's catalysts for growth, assesses its valuation, and explores whether it is still a worthy investment for those looking to add a semiconductor stock to their portfolios.

Broadcom's AI chip business is a significant driver of its growth. In fiscal 2024, the company's AI revenue grew by an astonishing 220% to $12.2 billion. Broadcom expects solid growth in the current quarter, forecasting a 65% year-over-year increase in revenue from sales of AI chips to $3.8 billion. As Broadcom continues to expand its customer base and develop new AI chips, its AI revenue could potentially triple by fiscal 2027, reaching $37.5 billion to $50 billion, depending on market size and Broadcom's market share.



Broadcom's custom AI processors are expected to play a crucial role in its revenue growth strategy in the coming years. The company's AI revenue grew an incredible 220% in fiscal 2024 to $12.2 billion, and it expects solid growth in the current quarter as well. Broadcom management estimates that the serviceable addressable market for its custom AI accelerators and networking chips could range between $60 billion and $90 billion by fiscal 2027. Assuming a midpoint of $75 billion and a 50% share of the custom chip market, Broadcom's AI revenue could hit $37.5 billion in fiscal 2027, nearly triple the AI revenue generated in the previous fiscal year. If Broadcom maintains its current market share of 55% to 60%, its AI revenue could easily exceed $50 billion, potentially driving its overall revenue well above analysts' expectations.



Broadcom's market share in the custom chip market is expected to significantly impact its revenue growth over the next three years. The company's management estimates that the serviceable addressable market for its custom AI accelerators and networking chips could range between $60 billion and $90 billion by fiscal 2027. Assuming Broadcom maintains its current market share of 55% to 60%, its AI revenue could hit $37.5 billion in fiscal 2027, nearly triple the AI revenue generated in the previous fiscal year. If Broadcom manages to maintain its share of the custom chip market at 60%, and the size of the market indeed hits $90 billion, then its revenue from AI-related sales could easily exceed $50 billion. This would result in Broadcom's overall revenue in fiscal 2027 being well above analysts' expectations.

Broadcom's AI chip growth will be driven by its custom AI processors, which are increasingly being adopted by major cloud service providers to reduce dependence on expensive graphics cards from Nvidia. The company's AI revenue grew 220% in fiscal 2024 to $12.2 billion, and it expects solid growth in the current quarter. With two additional hyperscale customers selecting Broadcom's custom AI processors, the company is well-positioned to capitalize on the growing demand for AI chips.



Broadcom's AI chip market share and pricing strategy will likely evolve in response to competition and market dynamics over the next three years. As rivals like AMD and Broadcom (AVGO) introduce competitive AI accelerators, Broadcom may face pricing pressure. However, Broadcom's strong customer base and custom AI processors could help maintain its market share. The company's AI revenue growth is expected to remain robust, potentially reaching $37.5 billion to $50 billion by fiscal 2027, depending on market size and Broadcom's share.

Broadcom's AI chip business faces several potential risks and challenges in the next three years. Firstly, increased competition from rivals like AMD and Broadcom itself, as well as proprietary AI chips developed by companies like Alphabet and Amazon, could erode Nvidia's dominant market share. Secondly, the reliance on third-party manufacturing services for production capacity and materials may lead to supply chain issues and pricing pressure. Lastly, the volatile nature of the AI chip market and the potential for a correction in Nvidia's stock price could impact Broadcom's valuation.

In conclusion, Broadcom's AI chip business is well-positioned for growth over the next three years, driven by increasing demand for AI chips and the company's strong customer base. While there are potential risks and challenges, Broadcom's robust AI revenue growth trajectory and attractive valuation make it an appealing investment for those looking to add a semiconductor stock to their portfolios. As always, investors should conduct thorough research and consider their risk tolerance before making any investment decisions.