‘Buy Any Dips,’ Says Investor About AVGO Stock

Broadcom (NASDAQ:AVGO) could be among the few companies able to challenge Nvidia’s dominant position in the AI accelerator market. The rapidly rising need to manage the significant expansion of AI inference workloads is driving exceptional demand for custom accelerator chips, creating an opening for Broadcom to compete head-to-head with Nvidia.

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Two of Broadcom’s largest customers – hyperscalers Google Cloud and Meta Platforms – are investing heavily in their own XPU initiatives. That push gives Broadcom visibility toward potentially doubling its AI semiconductor revenue over the next 20 months. The company is supplying chips for Google’s TPU program and Meta’s MTIA (Meta Training and Inference Accelerator) platform.

Investor Uttam Dey says this helps explain why Broadcom CEO Hock Tan indicated the company has a “line of sight to achieve AI revenue from chips, just chips,” exceeding $100 billion by next year. Based on current consensus estimates for AI semiconductor revenue in FY26, which appear to be around $50 billion, Dey believes Broadcom’s semiconductor revenue could roughly double.

“This is extremely strong for Broadcom, and shares are easily investable at current valuations of 30x forward earnings,” Dey added.

However, Dey thinks there is a near-term issue when it comes to the company’s gross margins. Right now, investors aren’t focused solely on growth and market share; gross margins are also receiving significant attention, particularly as Broadcom expands manufacturing capacity while component costs, including memory, laser chips, and raw materials, continue to rise alongside higher chip fabrication spending.

As Broadcom scales up production in its XPU segment, there are concerns that margins could face additional pressure, especially as the company begins shipping XPU racks, which typically carry gross margins below 50%, far lower than Broadcom’s usual profile of more than 70%.

Comments from Broadcom’s CFO suggest gross margins could see only a modest contraction over the next quarter or two as shipments of XPUs and XPU racks increase. But that might not appease investors enough.

“Even slight contractions in margins, which are apparently ‘not going to be substantial at all,’ per management, are not taken lightly by markets,” Dey added.

As such, until there is more clarity, Dey thinks shares could stay rangebound, leading the investor to maintain a “cautiously bullish” stance. Over the longer term, however, Dey believes the company can stabilize its margin profile, although the “perception risk” currently influencing the market could weigh on the stock in the near term.

Against that backdrop, Dey rates AVGO shares a Buy, arguing that “investors should maintain a tactically bullish view, stay focused on the $100B line of sight XPU revenue, and buy any dips in Broadcom’s shares.” (To watch Dey’s track record, click here)

That is also the conclusion reached by most Street analysts; based on 27 Buys vs. 2 Holds, AVGO claims a Strong Buy consensus rating. At $467.68, the average price target factors in 12-month returns of ~45%. (See AVGO stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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