This category-leading semiconductor and infrastructure software specialist is experiencing robust growth due to artificial intelligence (AI). There could be much more to come.
The proliferation of artificial intelligence (AI) over the past few years has had a profound impact on companies at the forefront of the technology. In fact, nine of the 10 most valuable companies, when measured by market cap, have unequivocal ties to AI. This helps to illustrate how this groundbreaking technology has caused a paradigm shift in the tech landscape. That said, just four companies have climbed the ranks to achieve market caps of $3 trillion or more.
AI chipmaker Nvidia has ridden the wave of AI adoption to a $4.9 trillion valuation. iPhone maker Apple and enterprise software and cloud specialist Microsoft recently swapped positions, with market caps of $4 trillion and $3.8 trillion, respectively. Rounding out the top four is search giant and cloud provider Alphabet, currently valued at $3.4 trillion.
With a market cap of roughly $1.7 trillion (as of this writing), it might seem a bit early to declare that Broadcom (AVGO 1.84%) is destined to join this elite group, but it seems inevitable. Broadcom holds a critical place in the AI ecosystem, and its accelerating results suggest it could join the $3 trillion club sooner rather than later.
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Broadcom has seen its fortunes rise thanks to AI, but investors may be surprised by the diversity of its product portfolio. In addition to AI solutions, the company offers broadband and wired networking, data center solutions, enterprise security, mainframe software, and wireless and mobile communication products, among others. In fact, the company says “99% of all internet traffic crosses through some type of Broadcom technology.”
That said, the ongoing adoption of AI is at the heart of Broadcom’s current opportunity, as most AI models and systems run in data centers, which are the company’s stock in trade.
Broadcom’s recent financial results show that AI is driving strong growth. In the third quarter, it generated record revenue of $15.9 billion, which accelerated 22% year over year, driving adjusted earnings per share (EPS) to $1.69, an increase of 36%. CEO Hock Tam cited “better-than-expected strength in AI semiconductors,” which surged 63% to $5.2 billion, accounting for one-third of Broadcom’s total revenue. Furthermore, the company expects AI-related revenue to grow in excess of 60% heading into 2026.
Broadcom estimates its AI opportunity at between $60 billion and $90 billion in 2027 alone for its three current hyperscale customers. The company generated AI revenue of $12.2 billion in fiscal 2024, suggesting the segment will generate growth of between 391% and 638% over a three-year period. Broadcom recently added OpenAI to its customer list, boosting that opportunity even further. Indeed, the company stunned investors when it announced it had added $10 billion to its backlog, bringing the total to a record $110 billion.
Today’s Change
(-1.84%) $-6.54
Current Price
$349.05
Key Data Points
Market Cap
$1650B
Day’s Range
$337.28 – $354.45
52wk Range
$138.10 – $386.48
Volume
915K
Avg Vol
23M
Gross Margin
63.13%
Dividend Yield
0.01%
The road to $3 trillion
Broadcom’s critical role in the technology landscape and the company’s 30-year track record of supplying data center infrastructure help explain why it will continue to profit from the adoption of AI.
According to Wall Street estimates, Broadcom is expected to generate revenue of $63.3 billion in 2025, giving it a forward price-to-sales (P/S) ratio of roughly 27. If the stock’s P/S remains constant, Broadcom will need to generate revenue of roughly $111 billion annually to support a $3 trillion market cap.
Wall Street’s expectations are bullish, guiding for revenue growth of 28% annually over the coming five years. If the company hits those targets, it could achieve a $3 trillion market cap as early as 2028. However, Broadcom’s growth continues to accelerate, and the addition of a new hyperscale customer (and another, as yet unnamed) suggests the company will reach that benchmark even sooner.
The AI boom has only just begun, and Broadcom is a crucial player in the space. Estimates suggest the generative AI market could be worth between $2.6 trillion and $4.4 trillion annually over the next decade, according to global management consulting firm McKinsey & Company.
There’s no denying that Broadcom has been a key beneficiary of the AI revolution, but its soaring stock price has fueled a commensurate increase in its valuation. That said, the stock isn’t as expensive as it may appear at first glance.
Broadcom is currently selling for 30 times next year’s expected earnings. While that’s certainly a premium, consider this: Broadcom has surged 2,820% over the past 10 years, compared to gains of just 225% for the S&P 500. This helps illustrate why the stock is deserving of its premium valuation.