In examining stocks with significant upside potential over the coming years, Broadcom (AVGO) stands out prominently. The chipmaker has experienced the recent market downturn, with its stock down about 20% in 2025. Nevertheless, it remains up over 45% over the past year.
AI Growth Opportunities
Broadcom operates in two main segments: semiconductor solutions and infrastructure software. Initially focused on hardware, the company expanded into the software sector through acquisitions such as CA Technologies, Symantec, and most recently, VMware. Acquiring CA Technologies added a substantial portfolio of mainframe and enterprise software solutions, while Symantec provided an enterprise security business.
The acquisition of VMware for $69 billion in November 2023 marked Broadcom’s largest deal. VMware is known for its leadership in virtualization and cloud computing. Its core product enables multiple virtual machines to run on a single server, reducing customer costs. Additionally, VMware Cloud Foundation assists customers in creating hybrid and multicloud environments to manage workloads across various platforms.
Broadcom aims to transform VMware by streamlining operations and transitioning customers to a subscription model. At the fiscal first quarter’s end, 60% of its customers had moved to this model. This transition includes upselling from its compute virtualization product, vSphere, to the VCF platform, contributing to a 47% increase in infrastructure software revenue to $6.7 billion last quarter, with a forecasted 23% growth for fiscal Q2.
Broadcom’s software businesses are poised to support growth as enterprise customers increasingly turn to hybrid cloud environments for AI workloads.
Hardware Developments
On the hardware side, Broadcom produces components for various markets, including wireless devices, broadband internet, and automotive, with networking and ASICs (application-specific integrated circuits) being its most critical sectors.
In networking, Broadcom manufactures essential AI infrastructure components, such as ethernet switches, optical receivers, digital signal processors, and network interface cards. These components facilitate data flow and workload distribution across servers, essential for managing AI infrastructure.
With increasing complexity and size of AI chip clusters, these networking components are crucial for maintaining performance and efficiency. Broadcom’s networking sector is expected to grow significantly, along with its ASICs business, which offers substantial opportunities. Broadcom assists customers in creating custom AI chips, providing better performance and reduced power consumption compared to mass-market GPUs from Nvidia.
While custom AI chips involve significant initial costs and take time to design, they offer lower long-term costs due to reduced power demands. Broadcom’s collaboration with Alphabet on the Tensor Processing Unit (TPU) has led to various other custom AI chip projects, including for Apple.
Broadcom anticipates its three most advanced AI chip customers will create a $60 billion to $90 billion market opportunity in fiscal year 2027. Although Broadcom will not capture the entire opportunity, strong growth is anticipated with several new customers, including Apple.
Projected Stock Performance
Broadcom reported $51.6 billion in revenue for fiscal 2024. Capitalizing on its custom AI chip opportunity and furthering VMware’s growth could push revenue beyond $100 billion by fiscal 2027. With a 75% gross margin and minimal added expenses, this could lead to an EPS increase, potentially reaching $14.50 by fiscal 2027. Further growth could add $2.25 in EPS by fiscal 2028.
With a 25 times forward price-to-earnings ratio at the end of 2027, based on $16.75 in fiscal 2028 EPS, the stock could be valued at over $400 in three years. Currently, the stock trades at a forward P/E near 28 times, suggesting a strong potential to double, aided by boosts in custom AI chip and networking revenue and VMware’s continuous growth.
