Is Broadcom (AVGO) a Buy Ahead of Its Earnings Report and AI-Driven Growth?

The semiconductor and software giant Broadcom (AVGO) has emerged as a focal point for investors eyeing the AI revolution. With its AI semiconductor revenue surging and strategic partnerships expanding, the stock has attracted bullish forecasts from top-tier analysts. However, its lofty valuation metrics raise critical questions: Is the current optimism justified, or is the market pricing in growth that may prove unsustainable? This analysis evaluates Broadcom's AI-driven momentum, earnings guidance, and valuation to determine whether the stock remains a compelling buy ahead of its Q4 2025 earnings report.

AI Revenue and Earnings Guidance: A High-Growth Story

Broadcom's AI semiconductor business has been a standout performer. In Q3 2025, the company reported $5.2 billion in AI-related revenue, a 63% year-over-year increase. This growth is projected to accelerate in Q4, with AI revenue expected to jump to $6.2 billion, driven by multibillion-dollar orders from hyperscalers and a new partnership with OpenAI. For fiscal 2026, Citi and Goldman Sachs have issued aggressive forecasts: Citi anticipates AI revenue of $49.3 billion (147% YoY growth), while Goldman Sachs predicts $45.4 billion (128% YoY growth). These projections are underpinned by Google's expansion of its TPU business to external customers and robust demand from AI leaders like OpenAI, Anthropic, and Meta.

Earnings guidance also appears robust. Broadcom's Q3 2025 non-GAAP EPS of $1.69 exceeded the $1.66 consensus estimate, and Q4 guidance of $1.88 adjusted EPS aligns closely with Wall Street's $1.87 expectation. Analysts from Citi and Goldman Sachs have further raised their expectations, with Citi forecasting $1.96 EPS (excluding SBC) for Q4. This consistency between management guidance and analyst projections suggests strong confidence in the company's ability to capitalize on AI-driven demand.

Valuation Metrics: A Double-Edged Sword

Despite the impressive growth, Broadcom's valuation metrics are among the most extreme in the market. As of December 6, 2025, the stock trades at a trailing P/E ratio of 100.24 and a forward P/E of 46.32. Its P/B ratio of 25.15 and P/EG ratio of 1.46 further highlight the premium investors are paying for its growth. While these metrics are not uncommon for high-growth tech stocks, they raise concerns about whether the market is overbaking future expectations.

For context, a PEG ratio above 1 typically indicates a stock is overvalued relative to its earnings growth. However, if Broadcom's AI revenue and EPS growth materialize as projected, the PEG could normalize. Goldman Sachs has raised its price target to $435 from $380, reflecting optimism about the AI-driven capital expenditure boom. Similarly, Citi's $415 target price is based on a 30x P/E applied to fiscal 2027 earnings. These adjustments suggest analysts believe the company's growth trajectory justifies the current valuation, at least in the medium term.

Earnings Surprise History: A Track Record of Outperformance

Broadcom's ability to consistently exceed expectations adds credibility to its guidance. Over the past four quarters, the company has beaten consensus EPS estimates by an average of +1.81%, with Q3 2025's $1.69 EPS surpassing the $1.66 estimate. This track record implies strong operational execution and demand resilience, particularly in AI infrastructure. Analysts attribute this to Broadcom's leadership in custom silicon (XPUs) and its strategic integration of VMware, which is enhancing enterprise cloud solutions.

However, the risk lies in whether this outperformance can continue. The AI market is highly competitive, and rivals like NVIDIA and AMD are also scaling their offerings. Broadcom's ability to maintain its edge in high-bandwidth connectivity and next-generation Ethernet solutions will be critical.

Analyst Forecasts and Strategic Position: A Bullish Consensus

Citi and Goldman Sachs have both emphasized Broadcom's strategic positioning in the AI ecosystem. Citi notes that AI revenue is expected to account for 53% of total sales in fiscal 2026, up from 31% in fiscal 2025, while Goldman Sachs highlights the impact of Google's Gemini 3 launch and the adoption of Broadcom's Tomahawk 6 chip. These developments, coupled with the OpenAI partnership, position Broadcom as a key enabler of the AI infrastructure boom.

Price targets from analysts also reflect this optimism. The current stock price of $390.24 is within the projected range of $347–$455 for December 2025, with January 2026 forecasts suggesting a potential 6.2% increase to $410. While these targets are ambitious, they align with the company's growth narrative and the broader AI market's expansion.

Risk Assessment: Balancing Growth and Valuation

The primary risk for investors is whether Broadcom's valuation is sustainable. A P/E ratio of 100.24 implies investors are paying a significant premium for future growth, which could be problematic if AI demand slows or execution falters. Additionally, the projected AI revenue jump to $40 billion in fiscal 2026 represents a 544% increase from Q4 2025's $6.2 billion-a rate of growth that may be difficult to sustain.

However, the company's strong earnings surprise history and strategic advantages in AI networking and custom silicon mitigate some of these risks. The integration of VMware and partnerships with hyperscalers also provide long-term growth avenues beyond AI semiconductors.

Conclusion: A Buy for the Long-Term, With Caution

Broadcom's AI-driven growth story is compelling, supported by robust revenue projections, consistent earnings outperformance, and bullish analyst forecasts. While its valuation metrics are elevated, they appear justified if the company can maintain its current trajectory. The key for investors is to balance the optimism with caution: the stock is not without risk, but its strategic position in the AI ecosystem and execution track record make it a strong candidate for long-term investors who can stomach near-term volatility.

For those willing to ride the AI wave, Broadcom remains a buy-provided they monitor execution and macroeconomic headwinds that could impact the broader tech sector.