Is Broadcom (AVGO) a Buy After the Earnings-Driven Sell-Off?

In the volatile world of AI-driven semiconductor stocks, Broadcom (AVGO) has recently experienced a sharp sell-off despite posting robust earnings. This divergence between fundamentals and market sentiment presents a classic contrarian opportunity. For investors willing to look beyond short-term noise, AVGO's position as a leader in AI infrastructure and its disciplined capital allocation strategy warrant closer scrutiny.

Earnings Performance: A Tale of Strength

Broadcom's Q3 2025 results underscore its dominance in the AI semiconductor space. The company reported revenue of $15,952 million, a 22% year-over-year increase, driven by a 63% surge in AI semiconductor revenue to $5.2 billion. Non-GAAP diluted earnings per share (EPS) of $1.69 exceeded expectations by 1.81%, reflecting strong execution. Post-earnings, the stock rose 1.23% in after-hours trading, signaling investor confidence in its trajectory according to the earnings call transcript. These metrics highlight AVGO's ability to capitalize on the AI boom, particularly in custom accelerators and infrastructure software.

Valuation Divergence: Overvalued or Undervalued?

The valuation debate around AVGO is stark. A base-case intrinsic value model estimates AVGO at $301.98, implying the stock is overvalued by 11% at its current price of $340.36. Conversely, bullish analysts argue the fair value is $403.66, citing a record $110 billion backlog (largely AI-driven) and disciplined capital allocation. This $100-per-share spread reflects divergent views on AVGO's growth sustainability.

The stock's price-to-earnings (P/E) ratio of 66.6x is notably higher than both peers and a historical fair ratio of 54.8x. While this premium may seem excessive, it is justified by AVGO's high-margin software expansion post-VMware acquisition and its role as a critical supplier in AI infrastructure. For contrarian investors, the key question is whether the market is overcorrecting or appropriately pricing in risks.

The Contrarian Case: AI Infrastructure's Unseen Value

Broadcom's position as a linchpin in AI infrastructure offers a compelling case for long-term buyers. Its AI semiconductor revenue growth of 63% year-over-year underscores its role in powering the next wave of computing demand. The company's software segment, bolstered by the VMware acquisition, now contributes high-margin recurring revenue, enhancing its resilience to cyclical downturns according to Morningstar analysis.

Moreover, AVGO's financial discipline-exemplified by its $17.4 billion Q4 revenue guidance (a 24% year-over-year increase) and consistent shareholder returns-reinforces its appeal. A $110 billion backlog according to market analysis provides a clear revenue runway, insulating the company from near-term demand fluctuations. For investors who prioritize durable cash flow and strategic positioning in high-growth sectors, AVGO's sell-off may represent a buying opportunity.

Risks and Realities
No contrarian play is without risks. AVGO's customer concentration-particularly its reliance on hyperscalers and cloud providers-exposes it to idiosyncratic demand shocks. Regulatory scrutiny of its VMware integration and potential antitrust challenges could also disrupt its growth trajectory. Additionally, the high P/E ratio implies the market is pricing in aggressive future growth, which may not materialize if AI adoption slows or competition intensifies.

Conclusion: A Calculated Bet for the Patient Investor

Broadcom's earnings-driven sell-off has created a valuation gap that reflects both optimism and skepticism. While the stock's premium valuation is justified by its AI infrastructure leadership and financial strength, the risks of overvaluation and customer concentration cannot be ignored. For contrarian investors with a long-term horizon, AVGO's disciplined capital allocation, robust backlog, and pivotal role in the AI ecosystem make it a compelling case study in asymmetric risk-reward.

In a market that often overreacts to short-term volatility, AVGO's sell-off may be a reminder that the best opportunities lie in understanding the underlying fundamentals of a business-not the noise of the moment.