Is Broadcom (AVGO) Still a Buy Ahead of Q4 Earnings Amid Soaring Valuations?

Broadcom (AVGO) has emerged as a poster child for the AI-driven semiconductor boom, with its shares surging 126% over the past year. As the company prepares to report Q4 2025 earnings on December 11, investors are grappling with a critical question: Is the stock's lofty valuation justified by its AI-driven growth prospects, or has optimism outpaced fundamentals?

AI-Driven Growth: A Double-Edged Sword

Broadcom's AI segment is a key growth engine, with revenues projected to rise 66% year-over-year to $6.2 billion in Q4 2025. This surge is fueled by demand for custom AI accelerators (XPUs) used in training generative AI models, as well as strategic partnerships with tech giants like Google, OpenAI, and Meta. For instance, Google's Gemini 3 model, trained entirely on Broadcom's Tensor Processing Units (TPUs), has added visibility to the company's AI footprint.

The company's innovation pipeline further bolsters its AI ambitions. Products like the Tomahawk 6-Davisson Ethernet switch and Wi-Fi 8 silicon solutions underscore Broadcom's ability to capture market share in high-growth niches according to analysts. Analysts project AI revenue could double to $40 billion in fiscal 2026, driven by expanding use cases in data centers and edge computing according to market research.

However, this growth is not without risks. Broadcom's chip business remains cyclical, and its reliance on a handful of major customers-such as Google and Meta-exposes it to demand volatility. Additionally, while AI adoption is accelerating, the market is becoming increasingly competitive, with rivals like Nvidia and AMD investing heavily in next-generation architectures according to industry reports.

Valuation Realism: A Stretched Premium

Broadcom's valuation metrics paint a picture of a stock priced for perfection. At a forward P/E of 41.23X and an EV/EBITDA of 39.29X according to analysis, the stock trades well above its historical median P/E of 20.95X and the industry average. These multiples are even more striking when compared to peers: Nvidia's forward P/E stands at 80.5X, while AMD's is 104.2X according to market data. Though Broadcom appears relatively attractively valued versus its rivals, its own metrics remain stretched by historical standards.

The disconnect between fundamentals and valuation is further highlighted by the company's price-to-sales (P/S) ratio of 29.07X according to financial analysis, which exceeds the S&P 500's average P/S of 4.5X. While Broadcom generates robust cash flow and maintains a wide economic moat, the current valuation implies sustained growth in AI revenues and margins that may be difficult to achieve. For example, analysts estimate that AI sales could account for 23% of total revenue in 2026 according to analyst reports, but this would require maintaining current growth rates in a market that is likely to see increased competition and pricing pressures.

Peer Comparison and Market Dynamics

The AI semiconductor market is expanding rapidly, with global revenue projected to reach $697 billion in 2025. Logic chips (processors, ASICs) and memory are the primary growth drivers, with Logic expected to grow 29% and Memory 17% in 2025 according to industry forecasts. Broadcom's focus on high-margin Logic segments-such as AI accelerators and Ethernet switches-positions it to benefit from this trend. However, supply chain challenges, including DDR5 shortages and TSMC's planned foundry price hikes, could pressure margins and delay product cycles.

Compared to peers, Broadcom's valuation appears more disciplined. While Nvidia and AMD trade at premium multiples, Broadcom's EV/EBITDA of 39.29X is lower than AMD's 57.3X according to financial analysis. This suggests investors are demanding higher returns from Broadcom to justify its valuation, a dynamic that could shift if the company fails to meet earnings expectations or guidance.

Analyst Sentiment: Optimism vs. Caution

Analysts are divided on Broadcom's near-term prospects. On the bullish side, UBS and Deutsche Bank have raised price targets, citing the company's AI momentum and strategic partnerships. Mizuho analysts highlight Broadcom's potential to outperform in 2026, noting its expanding total addressable market (TAM) in AI chips according to financial analysis. Conversely, some caution that the stock's 45X forward P/E ratio already incorporates aggressive growth assumptions, leaving limited room for error.

Key catalysts for further gains include exceeding Q4 earnings estimates, raising AI TAM guidance, or securing new custom chip contracts according to market analysis. Risks, however, include regulatory hurdles for acquisitions, customer concentration, and macroeconomic headwinds that could dampen demand for AI infrastructure according to financial research.

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

Broadcom's Q4 earnings report will be a pivotal test for the stock. If the company delivers on its $17.4 billion revenue forecast and $1.87 EPS estimate according to earnings reports, it could reinforce the narrative that its valuation is justified by AI-driven growth. However, investors should remain cautious about the risks of overvaluation, particularly in a market where expectations are already sky-high.

For long-term investors, Broadcom's strong cash generation, innovation pipeline, and leadership in AI infrastructure make it an attractive holding. But for those seeking near-term gains, the stock's current multiples may offer limited margin of safety. As with any high-growth play, the key will be monitoring whether Broadcom can sustain its AI momentum without sacrificing profitability.