Broadcom is well positioned to see a multi-year AI surge, driven by strong demand for its XPUs from hyperscalers and AI labs.
The company’s multi-year partnership with Alphabet has improved its visibility on Wall Street.
The company’s revenue mix is improving as the higher-margin infrastructure software business takes a larger share of the overall revenue base.
10 stocks we like better than Broadcom ›
Broadcom(NASDAQ:AVGO) has successfully positioned itself as a crucial player in building global artificial intelligence (AI) infrastructure. The company’s custom accelerators (XPUs), high-speed Ethernet-based networking products, and VMware Cloud Foundation private cloud software platform are now widely used by hyperscalers and AI labs to run large AI workloads.
Image source: Getty Images.
Broadcom will report its results for the fourth quarter and fiscal year 2025 (ending November 2, 2025) on December 11, which may significantly impact expectations for 2026 and the future trajectory of the company’s stock price. However, the stock currently trades at 40.3 times forward earnings, implying much of the upside potential is already priced in. Therefore, investors should consider whether to buy, sell or lock in profits ahead of the quarterly update.
Investors should watch for guidance for fiscal 2026 and 2027 that may be provided in the upcoming earnings call. Management has already stated that AI revenue will expand even faster than the estimated 50% to 60% year-over-year growth rate for fiscal 2025, driven primarily by exceptional demand for its custom accelerators from its three largest hyperscaler customers and a rapid increase in a fourth customer.
Broadcom believes each of its three hyperscaler customers will deploy 1 million of the company’s XPUs in AI clusters by 2027. These customers are increasingly opting for XPUs in their multi-year expansion cycle.
The company also secured a US$10 billion order for XPU-based AI racks from the fourth qualified customer in Q3 FY2025. Volume shipments of this order are expected to begin from Q3 FY2026. Therefore, the company is focusing on seven large key language modeling players, of which four are already customers, while the remaining three are high-potential prospects.
Broadcom’s multi-year partnership with Alphabet It is also proving to be an important catalyst for growth. Since 2016, Broadcom has been helping Alphabet develop and manufacture its in-house Tensor Processing Units (specialized AI chips), and the accelerated use of these TPUs in training and inference for Alphabet’s frontier models is increasing Broadcom’s long-term visibility in the AI semiconductor market.
Broadcom may also see greater use of its advanced packaging, network interconnects and SerDes interfaces (for chips to communicate with the outside world) in new generations of TPUs.
Hyperscalers are also adopting Broadcom’s open source Ethernet-based switches and networking interconnects, especially in AI clusters spanning more than 100,000 compute nodes. These high-bandwidth, low-latency, and energy-efficient networking hardware solutions enable network scaling (connecting XPUs and GPUs in one rack), network scaling (connecting multiple racks in a data center), and network scaling (connecting physically separate data centers).
Broadcom’s Tomahawk 5 and 6 switches and Jericho 3 and 4 fabric routers offer an open source alternative to Nvidia’s proprietary solutions, such as NVLink or InfiniBand. Being open source, these products also avoid customer dependency on vendors.
The high-margin infrastructure software business now accounts for nearly 43% of Broadcom’s total revenue. Nearly 90% of VMware’s top 10,000 customers have purchased licenses to deploy traditional and AI workloads on-premises or in partner clouds through the VMware Cloud Foundation (VCF) private cloud platform. However, many of the 10,000 customers are still implementing data center deployments. While this transition may take around two years, once completed, it can be a solid source of long-lasting, high-margin revenue streams for Broadcom.
While Broadcom’s non-AI chip business has been broadly flat in the third quarter, Broadcom expects modest improvement in the fourth quarter. However, the recovery is expected to be more U-shaped than V-shaped and could weigh on the company’s share prices.
Broadcom forecast fourth-quarter revenue of nearly $17.4 billion, up 24% year-over-year. Semiconductor revenue is expected to increase 30% year-over-year to $10.7 billion, while AI semiconductor revenue is expected to increase 66% year-over-year to $6.2 billion. The company also expects infrastructure software revenue to grow 15% year over year to $6.7 billion. Finally, fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is estimated to be 67%.
While these estimates are already strong, a better-than-expected performance may further boost Broadcom’s stock price after December 11.
While Broadcom has several long-term growth catalysts, its lofty valuation leaves very little room for error. Therefore, long-term investors can take a small stake and use a dollar-cost averaging strategy to build a position in this stock.
In case you already have a position in the stock, it may be best to hold it until December 11. With the company’s $110 billion backlog at the end of the third quarter, the company may continue to see significant share price appreciation even at elevated levels.
Before you buy Broadcom stock, consider this:
He Varied and Dumb Stock Advisor The analyst team has just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you would have $580,171!* Or when NVIDIA made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $1,084,986!*
Now, it is worth noting stock advisor The average total return is 1.004.%: An overwhelming outperformance of the market compared to the S&P 500’s 194%. Don’t miss the latest Top 10 list, available with Stock Advisorand join an investing community created by individual investors for individual investors.
See the 10 actions »
*Stock Advisor returns from November 24, 2025
Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
December 11 will be a big day for Broadcom. Should you buy or sell stocks now? was originally published by The Motley Fool
