Is it too late to buy Broadcom stock?

Artificial intelligence (AI) has significantly impacted the activities of semiconductor chip manufacturers over the past year and, as a result, the value of their shares. Broadcom (NASDAQ: AVGO) is among the beneficiaries of artificial intelligence, as the company’s share price has skyrocketed from a 52-week low of $79.51 a year ago to $185.16 in 2024.

The company announced a 10-for-1 forward stock split, sending the stock to a record high. Broadcom shares fell slightly after the July split, but they have stubbornly remained well above their lows.

Given Broadcom’s rapid rise in stock over the past year, does that mean it’s too late to buy? Here’s a look at the company to help you assess whether Broadcom still has room to grow in the long term.

Broadcom Sales Growth Factors

One of the things to consider when investing in Broadcom is how the company will grow over time. It’s currently seeing incredible year-over-year sales growth. For example, in its fiscal third quarter, which ended Aug. 4, Broadcom generated revenue of $13.1 billion, up 47% year over year.

However, most of this growth is due to the acquisition of VMware, which occurred in November 2023. Without VMware’s contribution, Broadcom’s 47% year-over-year growth would have been just 4% in the third quarter.

VMware is a leading provider of virtualization software that lets IT organizations run multiple operating systems on a single server. It’s like having multiple computers in one, and it’s a core capability in the IT industry. But acquisitions alone aren’t the only thing driving revenue growth.

Broadcom has changed its VMware offering to a software-as-a-service (SaaS) model. This change means that customers now rent VMware software instead of buying it, providing Broadcom with steady, predictable subscription revenue.

Another factor driving sales growth is that VMware is helping enterprises run AI technology in their private cloud computing environment, rather than in a public one such as Microsoft-proprietary Azure. Many companies prefer this for privacy and security reasons, and it can also reduce costs.

This capability is one reason Broadcom acquired VMware. Not only does it expand its software offerings to complement its hardware products, but Broadcom now provides customers with a more complete set of AI solutions.

Other Broadcom Advantages and Disadvantages

Speaking of AI, how is Broadcom doing in this key growth area? The company’s AI-related revenue in its semiconductor business has not only grown over time, but that growth is accelerating.

Last year, AI-related sales made up about 15% of the division’s revenue. In fiscal 2024, AI is expected to reach 35% and account for more than $10 billion of the company’s projected $51.5 billion in full-year revenue.

Part of Broadcom’s success in AI comes from its work building custom AI accelerators for cloud computing hyperscalers like Microsoft. These accelerators are essential for increasing the speed of AI systems.

During the company’s fiscal third-quarter earnings conference call, CEO Hock Tan described Broadcom’s sales growth in this area, stating, “As you know, our hyperscale customers continue to scale their AI clusters. Custom AI accelerators grew three and a half times year over year.”

However, Broadcom admitted that “a relatively small number of customers account for a significant portion of our net income.” For example, Apple accounted for 20% of Broadcom’s sales in fiscal 2023.

If the company loses any of those customers, it could significantly hurt Broadcom’s revenue. Of course, the reverse is also true. When Apple recently announced its new iPhone 16 devices, the news boosted Broadcom’s stock.

Broadcom Stock Decision

AI will likely continue to be a boon for Broadcom for some time. In fact, the company expects sales to continue to grow this year. It expects revenue to reach $14 billion in the fiscal fourth quarter. That’s a 51% increase from $9.3 billion the year before.

In addition, Broadcom offers a dividend, adding a source of passive income to your investment. The company’s dividend yield is a respectable 1.3%, and Broadcom has a good growth history, raising its dividend for 13 consecutive years.

Another factor is what Wall Street analysts think. The current consensus among them is a “buy” rating on Broadcom stock with an average price target of $195 a share.

These factors, the company’s combination of AI hardware and software, and its focus on private clouds for AI workloads give it a solid strategy to carve out AI market share. As a result, Broadcom is an attractive long-term investment.

That said, Broadcom’s stock price-to-earnings (P/E) ratio currently stands at 146. Compare that to semiconductor giant AI NvidiaThe P/E ratio is 56 and Broadcom looks expensive.

Data by YCharts.

So while it’s not too late to benefit from a long-term investment in Broadcom, for now the best approach is to wait until the stock drops again before buying. In the meantime, Broadcom is a worthwhile stock to put on your list of investment opportunities to watch.

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Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.