Is Now the Right Time to Buy Broadcom (AVGO) Amid Strong Earnings Momentum and Analyst Optimism?

Broadcom (NASDAQ: AVGO) has emerged as a standout performer in the semiconductor sector, driven by explosive growth in AI-related revenue and robust earnings execution. However, the stock’s stratospheric valuation metrics raise critical questions for investors: Is the current optimism justified by fundamentals, or is the market overreaching in its enthusiasm? This analysis weighs Broadcom’s earnings momentum, valuation dynamics, and analyst sentiment to determine whether the stock remains a compelling buy.

Earnings Momentum: A Story of AI-Driven Growth

Broadcom’s Q2 2025 results underscore its dominance in the AI semiconductor market. Revenue surged to $15.95 billion, exceeding Wall Street estimates by $0.05 billion, while non-GAAP earnings per share (EPS) of $1.69 beat consensus by 1.6% [1]. The star of the show was AI semiconductor revenue, which skyrocketed 63% year-over-year to $5.2 billion [6]. This growth is not speculative: A $10 billion AI chip order from a major customer—widely speculated to be OpenAI—signals sustained demand for Broadcom’s custom accelerators [2].

Looking ahead, the company’s Q3 guidance of $17.4 billion (2.1% above estimates) and projected AI revenue of $6.2 billion highlights its trajectory [1]. Analysts project revenue to balloon from $51.57 billion in fiscal 2024 to $157 billion in 2029, with adjusted EPS expected to grow from $4.87 to $19.82 [2]. These figures reflect a compounding growth story fueled by AI infrastructure demand.

Valuation: A Premium That Tests Investor Patience

Despite these fundamentals, Broadcom’s valuation metrics are staggering. The stock trades at a forward P/E of 122.1 [1], a price-to-sales ratio of 27.45 [6], and an EV/EBITDA of 56.4 [3]. These multiples far exceed the semiconductor industry’s averages: a P/E of 56.6x [2] and an EV/EBITDA of 25.14x [6]. Even the PEG ratio of 2.91 [3]—which accounts for growth expectations—places the stock well above the industry median of 1.675 [4], suggesting the market is pricing in perfection.

Such extremes raise concerns. While AI growth is real, sustaining 47.7% EPS growth in 2025 and 30.1% in 2026 [6] will require continued execution in a sector prone to rapid technological disruption. A misstep in R&D or a slowdown in AI adoption could leave the stock vulnerable to mean reversion.

Analyst Sentiment: Optimism vs. Caution

Analyst sentiment remains overwhelmingly bullish. Of 30 recent ratings, 11 are “Strong Buy” and 18 are “Buy” [2], with average price targets rising to $355.8 (up 15.73% from prior estimates) [2]. Notably, Susquehanna’s Christopher Rolland set a $680 price target, reflecting confidence in Broadcom’s AI-driven future [3]. However, this optimism contrasts with the stock’s PEG ratio, which implies investors are paying a 40% premium for each unit of growth [3].

The disconnect between sentiment and valuation is stark. While analysts justify the high P/E by citing future earnings potential, the semiconductor industry’s average P/E of 56.6x [2] suggests even peers are trading at a discount relative to Broadcom. This premium may be warranted if AI adoption accelerates, but it also reflects a lack of margin for error.

Balancing the Scales: Is Now the Right Time to Buy?

The case for Broadcom hinges on its ability to sustain AI-driven growth. The company’s recent $10 billion order [2] and 63% YoY AI revenue surge [6] demonstrate its leadership in a critical sector. However, the valuation demands a leap of faith. At 122x forward earnings, the stock assumes no missteps in execution and a prolonged AI boom.

For risk-tolerant investors who believe in the long-term secular trend of AI infrastructure, AVGO could offer outsized returns. Yet, the high multiples also expose investors to volatility if growth slows or valuations normalize. A more cautious approach might involve waiting for a pullback or diversifying exposure to mitigate the risk of overpaying for growth.

Conclusion

Broadcom’s earnings momentum and AI-driven growth narrative are compelling, but the stock’s valuation is a double-edged sword. While the company’s fundamentals justify optimism, the current price reflects a future where AI adoption accelerates without interruption. Investors must weigh their conviction in this trajectory against the risks of overvaluation. For now, AVGO remains a high-conviction call—ideal for those who can stomach the premium and are confident in the AI revolution’s staying power.

Source:
[1] No Surprises In Broadcom's (NASDAQ:AVGO) Q2 Sales [https://finance.yahoo.com/news/no-surprises-broadcom-nasdaq-avgo-203107832.html]
[2] A $10 Billion Reason To Buy Broadcom Stock Now [https://www.barchart.com/story/news/34672808/a-10-billion-reason-to-buy-broadcom-stock-now]
[3] AVGO (Broadcom) PEG Ratio [https://www.gurufocus.com/term/peg-ratio/AVGO]
[4] U.S. Semiconductors Industry Analysis [https://simplywall.st/markets/us/tech/semiconductors]
[5] NASDAQ: AVGO - Broadcom stock analysis and financials [https://fullratio.com/stocks/nasdaq-avgo/broadcom]
[6] EBITDA multiples by industry [https://fullratio.com/ebitda-multiples-by-industry]