With AI semiconductor revenue as the driving factor, Broadcom (AVGO) stock has trended higher by 56% in the last 52 weeks. The rally has been supported by robust top-line growth and upside in cash flows.
Yesterday, Broadcom reported Q2 results, and the company delivered revenue and earnings beats. Q2 revenue increased by 48% on a year-on-year (YoY) basis to $22.2 billion. For the same period, adjusted EBITDA margin was robust at 69%, and the company reported healthy free cash flows of $10.3 billion.
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Besides strong quarterly numbers, Broadcom has also provided an optimistic guidance for Q3. Revenue is expected at $29.4 billion, which would imply a YoY increase of 84%. Therefore, the momentum in terms of healthy cash flows is likely to be sustained.
That said, the strong earnings results didn't quite live up to the “hype,” and AVGO is taking a beating this morning to the tune of about 14% down. This is a temporary setback, as the company's revenue and earnings show a very healthy company.
About Broadcom Stock
Headquartered in Palo Alto, Broadcom is a developer and supplier of semiconductor and semiconductor-based solutions and infrastructure software solutions. The company’s two business segments include the Semiconductor Solutions and the Infrastructure Solutions.
The semiconductor solutions are offered to five major end markets: Networking connectivity, wireless device connectivity, servers and storage systems, broadband and industrial. Further, the company’s infrastructure service portfolio includes private cloud, mainframe software, cybersecurity, enterprise software, and FC SAN management.
Over the years, Broadcom has grown through innovation and acquisitions. The company ended FY25 with a turnover of $63.9 billion and an IP portfolio of 18,000 patents. With products and solutions aligned with the requirements of the world of AI, Broadcom is positioned for sustained growth.
In the last six months, AVGO stock has trended higher by 7% on the back of healthy growth and optimistic guidance.
www.barchart.com AI Semiconductor: A Key Growth Catalyst
Besides headline numbers, there is a key positive from the company’s Q2 earnings call, the trend in AI semiconductor revenue. For Q2, Broadcom reported AI semiconductor revenue of $10.8 billion, which was higher by 143% on a year-on-year (YoY) basis. Further, during the quarter, bookings for AI semiconductors came in at $30 billion.
The momentum is likely to be sustained with FY26 AI semiconductor revenue estimated at $56 billion. For FY27, revenue from this segment is likely to exceed $100 billion. Broadcom expects growth to sustain even for FY28. Therefore, there is clear revenue visibility, and Broadcom is on track to deliver annualized free cash flows exceeding $50 billion in the next 12 to 18 months.
It’s important to note that the company’s core customers for AI semiconductor revenue include Alphabet (GOOG) (GOOGL), Anthropic, OpenAI, and Meta (META). Further, shipment for two more customers begins in 2026 and is expected to accelerate in 2027. With significant AI-related commitments, these customers are likely to ensure that growth sustains.
What Do Analysts Say About AVGO Stock?
Based on 42 analysts with coverage, AVGO stock has a consensus “Strong Buy” rating. While 34 analysts have a “Strong Buy” rating for AVGO stock, three have a “Moderate Buy,” and five have a “Hold” rating.
The mean price target of $484.54 represents a potential upside of 18% from current levels. Further, the most bullish price target of $630 suggests that AVGO could climb 53% from here.
www.barchart.com Concluding Views
Valuations might seem stretched considering the point that AVGO stock is trading at a forward price-earnings ratio of 46.42. However, the earnings growth for FY26 and FY27 is expected at 75.67% and 66.94%, respectively; the price-earnings-to-growth ratio is less than 1. With robust growth, valuations point to AVGO stock remaining in an uptrend.
Besides capital gains, it’s worth noting that the common stock dividend in AVGO stock has increased at a CAGR of 30% between FY16 and FY26. Considering the cash flow potential, it’s likely that dividends will continue to swell coupled with aggressive share repurchase. For the first two quarters of FY26, Broadcom reported $8.45 billion in share repurchase.
Overall, Q2 results provide clear growth visibility with AI semiconductor revenue being the catalyst. Along with top-line growth, Broadcom is positioned for steady cash flow upside and value creation. Today's price chart noise is just that: noise.
On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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