Broadcom is emerging as a critical, yet often overlooked, player in the AI market, building custom ASICs for tech giants like Google, Meta, OpenAI, and Anthropic. These cost-effective chips are driving explosive growth, with AI chip sales projected to climb from $20 billion in fiscal 2025 to over $100 billion by fiscal 2027.
Despite its impressive growth rates (53% revenue CAGR, 66% EPS CAGR through FY2028), Broadcom trades at a surprisingly low 25 times next year’s earnings, making it one of the most undervalued mega-cap AI stocks compared to its peers like Nvidia.
Often eclipsed by the buzz around Nvidia's (NVDA) data center GPUs, Broadcom (AVGO) is quietly emerging as one of the fastest-growing and most crucial chipmakers in the burgeoning artificial intelligence sector. While Nvidia dominates general-purpose AI training with its GPUs, Broadcom specializes in crafting custom application-specific integrated circuits (ASICs) designed to accelerate specific AI workloads.
These tailored AI accelerators offer a significant advantage: at scale, they can prove far more cost-effective than their general-purpose GPU counterparts. This economic efficiency has made Broadcom a preferred partner for tech titans and leading AI developers.
Image source: Getty Images.
Giants like Alphabet's Google, Meta Platforms, OpenAI, and Anthropic are all actively procuring Broadcom's AI chips. This pivotal role positions Broadcom for substantial growth, making its current valuation an intriguing prospect for investors looking to capitalize on the AI revolution.
Broadcom's Explosive AI Growth Trajectory
Broadcom's AI business has experienced remarkable expansion. In fiscal 2025 (ending last November), AI chip sales skyrocketed by 65% to $20 billion, constituting a significant 31% of its total revenue. The company forecasts an even more dramatic increase, projecting these sales to reach at least $100 billion by fiscal 2027, which would account for over 58% of its anticipated revenue.
NASDAQ: AVGO
Key Data Points
This growth is fueled by hyperscale customers scaling up their AI infrastructure. By deploying Broadcom's custom ASICs, these companies can mitigate costs and reduce their reliance on Nvidia's offerings. While not as versatile for general training as Nvidia's GPUs, Broadcom's ASICs are exquisitely optimized for specific inference tasks, a critical component of deployed AI.
Beyond AI chips, Broadcom boasts a diverse portfolio spanning non-AI chips for mobile, data center, networking, wireless, storage, and industrial uses, alongside infrastructure and security software. This broad product offering allows Broadcom to bundle solutions, fortifying customer loyalty and expanding its competitive moat across various markets.
A Compelling Investment in the AI Era
Analysts project Broadcom's revenue and EPS to surge at compound annual growth rates (CAGRs) of 53% and 66%, respectively, from fiscal 2025 to fiscal 2028. Despite these robust growth forecasts, Broadcom trades at roughly 25 times next year's earnings, positioning it as one of the most attractively valued mega-cap AI stocks when considering its growth potential.
To put this in perspective, Nvidia, with its impressive projected revenue and EPS CAGR of 46% from fiscal 2026 to fiscal 2029, trades at 16 times next year's earnings. While Nvidia's multiple appears lower, Broadcom's significantly higher growth rates suggest its stock is relatively cheaper on a growth-adjusted basis. Furthermore, Broadcom appears even more undervalued relative to its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), trading at 16 times next year's adjusted EBITDA, given its $1.98 trillion enterprise value. For long-term investors seeking exposure to the booming AI market, Broadcom presents a compelling and overlooked opportunity.
