Broadcom (AVGO) Maintains Buy Rating Amid AI Infrastructure Boom, Nears Regulatory Crossroads

Broadcom Inc. (AVGO) has emerged as a bellwether for the artificial intelligence (AI) revolution, with analysts reaffirming its “Buy” rating in May 2025 as hyperscalers like Microsoft and Meta continue to pour billions into AI infrastructure. Despite looming regulatory risks tied to U.S. export policies, the semiconductor giant’s dominance in networking and AI chip solutions has analysts betting on sustained growth—though not without caveats.

Ask Aime: "Will Broadcom's AI leadership sustain its growth amid regulatory risks?"

The AI Capex Catalyst

Broadcom’s AI-related revenue surged 77% year-over-year to $4.1 billion in its most recent quarter, driven by demand for its high-speed networking components and AI accelerators. Analysts at Melius Research highlighted this momentum, citing $4.4 billion in projected AI chip revenue for Q2 2025, as hyperscalers ramp up data center capacity. Microsoft and Meta, two of Broadcom’s largest clients, are key drivers: Microsoft’s $80 billion AI data center spending plan and Meta’s raised $64–72 billion CapEx forecast for 2025 directly fuel Broadcom’s growth. These investments contributed $20 billion and $9 billion, respectively, to Broadcom’s 2024 revenue, underscoring its critical role in the AI supply chain.

Regulatory Crossroads

The company’s outlook hinges on navigating U.S. trade policies. On May 15, 2025, the U.S. Department of Commerce is set to finalize its Framework for Artificial Intelligence Diffusion, which could impose stricter global licensing for advanced AI chip exports. Analysts warn this could backfire: seven Republican senators have urged the administration to withdraw the rule, arguing it would push buyers toward unregulated Chinese alternatives. Broadcom’s $15 billion in total revenue (up 25% YoY) is already strained by shortages of NVIDIA GPUs, which have diverted demand to its own AI chips. A misstep in regulatory negotiations could destabilize this trend.

Ask Aime: What's Broadcom's AI chip revenue growth?

Valuation and Financial Risks

Broadcom’s stock trades at 97x trailing earnings, a steep premium even for a firm projected to grow earnings at 20% annually. While its $10 billion stock buyback authorization and $2.36 annual dividend (yielding 1.16%) offer near-term comfort, its payout ratio of 113.46% raises sustainability concerns.

Institutional Sentiment

Despite these risks, 76.43% of Broadcom’s shares are held by institutions, though some are trimming stakes. For example, Bamco Inc. NY reduced its holding by 4.1% in Q4 2024 but remains a top investor with $112.29 million allocated. Analyst consensus leans cautiously optimistic: a “Moderate Buy” rating with an average price target of $229.48 reflects hope that AI spending and regulatory clarity will outweigh valuation fears.

Conclusion: A High-Reward, High-Risk Play

Broadcom’s reaffirmed “Buy” rating is justified by its stranglehold on AI infrastructure—a market where its $4.1 billion quarterly AI revenue and 77% YoY growth leave little doubt about its strategic position. Hyperscalers’ CapEx plans, like Microsoft’s $80 billion commitment, cement its role as a beneficiary of the AI gold rush. Yet risks loom large: a misstep on trade policy could divert demand to Chinese competitors, while its 97x P/E multiple leaves little room for error in an industry prone to cyclical downturns.

Investors should weigh the upside of $4.4 billion in projected Q2 AI revenue against the geopolitical uncertainty. For those willing to bet on Broadcom’s execution in a high-stakes regulatory environment, the stock’s $229.48 price target suggests a 12% upside from current levels. But with 113% payout ratios and a 52-week price swing of $127.51 to $251.88, this is a stock for aggressive investors prepared to navigate both AI’s promise and Washington’s pitfalls.