Broadcom Stock (AVGO) Primed to Maintain Long-Term Uptrend as Indices Return to Mean
Broadcom (AVGO) presents a strong investment opportunity, driven by its strategic focus on value creation within the rapidly evolving advanced technology space. As a key enabler of AI, Broadcom goes beyond hardware—its high-margin ecosystem, powered by AI and enterprise software, adds significant long-term appeal. While the stock may appear expensive at first glance, its valuation is justified by the company's foundational role in AI infrastructure and the robust, secular growth trends it continues to ride.
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In terms of raw performance, AVGO stock has outperformed the market by a substantial margin over the past year. Further underpinning the bullish theme, broader U.S. stock indices such as the Dow Jones, Nasdaq, and S&P 500 are all back at their historic highs, having shaken off the macroeconomic shock of a U.S.-China trade war. Given the solid fundamentals and strong outperformance, I think AVGO serves as a superb addition to any investor's portfolio; I'm stoutly bullish.
Broadcom Is a Next Generation Technology Enabler
Broadcom's latest quarterly results underscore the flawless execution of its strategy. The company reported impressive revenue of $15 billion, up 20% year-over-year. AI Semiconductor sales surged 46% to $4.4 billion, while Infrastructure Software revenue reached $6.6 billion, marking 25% growth. Free cash flow reached $6.4 billion, accounting for 43% of revenue and representing a 44% year-over-year increase.
Guidance for fiscal Q3 2025 further strengthens the bullish outlook. Broadcom projects $15.8 billion in total revenue, reflecting a 21% year-over-year increase. AI Semiconductor sales are expected to rise 60% to $5.1 billion, and Infrastructure Software revenue is projected to grow 16% to $6.7 billion.
These results and forward-looking projections reflect Broadcom's consistent value creation and operational discipline. Under CEO Hock Tan's leadership, the company has demonstrated mastery in driving growth, executing strategic mergers and acquisitions, and optimizing internal efficiencies—all with a clear focus on long-term shareholder value.
Broadcom Is Constructing an AI Infrastructure Fortress
Broadcom sits at the heart of the AI boom, strategically investing in custom silicon and high-performance networking, both of which are foundational to the long-term economics of AI infrastructure. Major hyperscalers are increasingly relying on Broadcom's custom application-specific integrated circuits (ASICs) to power their AI workloads, and this reliance is poised to grow.
CEO Hock Tan projects the current 60% year-over-year growth in AI semiconductor revenue will extend into Fiscal 2026, driven by the multi-year expansion of AI infrastructure, the rising complexity of AI models, and continued investment across both training and inference.
Beyond custom silicon, Broadcom is a significant force in AI networking through its Tomahawk and Jericho switch families—critical technologies for interconnecting large-scale AI clusters. The Tomahawk 6, for example, delivers up to 102.4 terabits per second of switching capacity, enabling the performance demands of next-gen AI systems. AI networking, which already accounts for approximately 40% of Broadcom's AI revenue, is expected to grow sharply, and a year-over-year increase exceeding 170% in this segment would not be surprising.
Broadcom Also Has a Software Profit Engine
Despite initial skepticism, Broadcom's acquisition and integration of VMware has been a masterful example of disciplined, long-term value creation. Broadcom's strategy for VMware to become a high-margin, recurring software business is beginning to take shape.
Broadcom has made significant strides in converting VMware's customers to a subscription-based business model. For example, greater than 87% of VMware's top 10,000 customers have adopted the VMware Cloud Foundation (VCF) subscription, with the conversion expected to occur primarily over the next 12-18 months.
This change has significantly improved Broadcom's infrastructure software operating margins, which increased from 60% to 76% in Fiscal Q2 2025. I expect further margin improvement as the company continues to roll off legacy contracts and solidify its subscription base.
Financial Masterplanning at Broadcom
Broadcom exemplifies disciplined financial management, with robust free cash flow and strong returns on deployed capital forming the backbone of its investment appeal. In Fiscal Q2 2025, the company delivered a record $6.41 billion in free cash flow—an impressive 43% of revenue—and this level of cash generation is expected to persist. Free cash flow remains the engine that drives Broadcom's ability to invest, deleverage, and return capital to shareholders.
Following its earnings release, Broadcom reduced its gross principal debt from $69.4 billion to $67.8 billion, reaffirming its commitment to maintaining a 2x debt-to-EBITDA ratio. Management has been clear: cash not allocated to dividends will be prioritized for debt reduction.
At the same time, Broadcom continues to return capital to shareholders on a large scale. In Q2 alone, the company paid out $2.8 billion in dividends and repurchased $4.2 billion in stock. In April, the Board authorized a new $10 billion share repurchase program, which will run through the end of 2025, signaling strong internal confidence in the company's long-term prospects. As free cash flow accelerates and debt is further reduced, this disciplined approach could create a compounding effect on earnings per share. Should the stock experience a pullback to technical support levels, I believe it could present an attractive entry point toward achieving a 30% annual return target.
Is Broadcom a Buy, Sell, or Hold?
Broadcom has a consensus Strong Buy rating on Wall Street based on 27 Buys, two Holds, and zero Sells. The average stock price target for AVGO is $289.60, indicating a potential return of 18% over the next 12 months.
I'm Staying Bullish on Broadcom
In my view, the convergence of accelerating AI-driven revenue, expanding high-margin software contributions from VMware, and Broadcom's disciplined capital allocation creates a particularly compelling investment case.
These factors form the core of my thesis for achieving an annual return in the 30% range over the coming years. While the company continues to actively pursue strategic acquisitions, it is also steadily building long-term value through foundational infrastructure and prudent financial stewardship. With strong momentum, exceptional leadership, and a clear growth runway, Broadcom stands out as a high-quality opportunity in a transformative sector.
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