Is Broadcom Stock a Buy After the Recent Selloff? Strategic AI-Driven Growth and Valuation Justification

Broadcom (AVGO) has experienced a sharp selloff in recent weeks, with its stock declining over 17% in three trading days following strong fiscal Q4 2025 results. This volatility has sparked debate among investors about whether the pullback presents a buying opportunity. To assess this, we must examine Broadcom's strategic positioning in the AI infrastructure market, its financial performance, and how its valuation stacks up against peers like NVIDIA.

Strategic AI-Driven Growth: Partnerships and Technological Edge

Broadcom's recent moves in AI are anchored in two pillars: custom silicon development and networking innovation. The company's most high-profile partnership is with OpenAI, under which the two firms will co-develop and deploy 10 gigawatts of custom AI accelerators and networking systems over the next three years. This collaboration, set to begin in late 2026, leverages Broadcom's Ethernet expertise to scale OpenAI's AI infrastructure, addressing surging global demand for advanced computing power.

Beyond OpenAI, Broadcom is deepening its AI infrastructure offerings through partnerships with enterprise IT solution providers. For instance, Pinnacle partners like Pellera Technologies and ITQ are helping customers adopt AI-driven automation and private AI solutions, particularly in data-sensitive sectors like financial services according to Broadcom's partner strategy. Meanwhile, Broadcom's recent showcase of Tomahawk® 6 and Tomahawk Ultra technologies at the 2025 OCP Global Summit underscores its leadership in scalable AI networking solutions according to Broadcom's technology showcase. These advancements position Broadcom as a critical enabler of large-scale AI deployments, complementing its existing dominance in custom ASICs for hyperscalers like Google and Meta according to market analysis.

Financial Performance: Strong Revenue Growth, Margin Pressures

Broadcom's fiscal Q4 2025 results highlighted the explosive potential of its AI business. AI semiconductor revenue surged 74% year-over-year to $6.5 billion, driven by demand for custom chips and networking solutions. The company also reported a $73 billion AI order backlog, which it expects to fulfill over the next six quarters. Analysts project AI revenue to double to $8.2 billion in fiscal Q1 2026, with total revenue growth of 51% for the year.

However, the stock's selloff reflects investor concerns over margin compression. AI-related revenue, while growing rapidly, carries lower gross margins compared to traditional segments. This has led to short-term volatility, despite the company's strong cash generation and operating margins.

Competitive Positioning: Complementary to NVIDIA's Dominance

NVIDIA remains the undisputed leader in AI accelerators, controlling over 90% of the data center GPU market and benefiting from its CUDA ecosystem. Its recent Blackwell GPU sales hit $11 billion in a single quarter, and U.S. policy shifts have reopened access to the Chinese market according to financial reports. Analysts project NVIDIA's earnings to grow at a 37% annual rate through 2030.

Broadcom, however, occupies a distinct niche. While it does not compete directly with NVIDIA in compute, its focus on high-speed networking chips and custom ASICs makes it indispensable for hyperscale AI infrastructure. For example, Broadcom's Tomahawk 5 technology can connect 512 compute nodes via Ethernet, contrasting with NVIDIA's proprietary NVLink, which scales up to 72 GPUs according to market analysis. This open-standards approach appeals to customers seeking flexibility and scalability.

Analysts acknowledge that Broadcom's gross margin is lower than NVIDIA's, but its cash generation and long-duration contracts with hyperscalers provide durability. Morgan Stanley estimates that AI accelerator sales could grow at 34% annually through 2030, with Broadcom capturing a significant share outside NVIDIA's core GPU market.

Valuation: High Multiples, Justified by Growth?

Broadcom's valuation appears elevated at 26 times sales and 71 times trailing earnings according to financial analysis. However, these multiples must be weighed against its growth trajectory. The company's AI revenue is projected to grow at a 30% annual rate according to market forecasts, and its $73 billion order backlog provides visibility for future cash flows according to investment research. Analysts maintain a "Strong Buy" rating, with an average one-year price target of $455 per share, implying a 33% upside.

In comparison, NVIDIA trades at a lower P/E ratio and offers a more compelling PEG ratio due to its faster earnings growth and broader ecosystem according to financial analysis. Yet, Broadcom's role in AI infrastructure is complementary, and its focus on durable, high-margin networking solutions could insulate it from some of the volatility affecting pure-play AI compute stocks.

Conclusion: A Buy for Long-Term AI Exposure

Broadcom's recent selloff reflects short-term margin concerns but overlooks the company's strategic strength in AI infrastructure. Its partnerships with OpenAI and hyperscalers, combined with advancements in networking technology, position it to benefit from the multi-year AI bull market. While NVIDIA's dominance in compute remains unmatched, Broadcom's complementary role in connectivity and custom silicon ensures its relevance in the AI ecosystem.

For investors seeking exposure to AI-driven growth, Broadcom offers a compelling case: a high-conviction play on the infrastructure layer, supported by durable cash flows and a robust order backlog. The current valuation, though elevated, appears justified by the scale of its AI opportunities.