Broadcom's Stock Has Beaten the Market in 12 of the Past 13 Years, and It Could Do It Again in 2026
Key Points
Broadcom's strong relationship with hyperscalers puts it in a great position to benefit from high spending in the tech sector.
The company's growth rate recently came in at 48%, and there may be room for further growth due to artificial intelligence.
Its valuation may not be as high as it appears to be at first glance.
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Did you know that in just the past five years, Broadcom (NASDAQ:AVGO) has generated returns of more than 700% for its shareholders? But that only tells part of the impressive growth story of this tech company, whose market cap is a mammoth $1.8 trillion right now.
Broadcom has consistently beaten the market in 12 of the previous 13 years -- the only blemish being 2019, when its gains of 24% weren't enough to outperform the S&P 500, which was up by nearly 29% that year. And while the stock has dipped recently, it could beat the market again in 2026. Here's why it's been such a terrific growth stock, and why it can continue to be a good buy in the long run.
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Broadcom's close relationship with hyperscalers puts it in an excellent position to grow
Hyperscalers are companies with vast data networks and cloud computing capabilities that have massive needs for computing power. These are the types of businesses with which Broadcom has closer partnerships, including leading tech giants such as Amazon, Alphabet, and Microsoft.
As these companies have been investing in opportunities related to artificial intelligence (AI) in recent years, Broadcom has been in a prime position to capitalize. The tech stock has performed exceptionally well over the past couple of years, particularly as tech capex has risen.
CEO Hock Tan previously told analysts that revenue from the company's AI chips could top $100 billion next year, underlining just how massive the growth opportunity is for the custom chipmaker. Its application-specific integrated circuits (ASICs) can help companies diversify beyond Nvidia's more generic options, while potentially reducing costs.
The business has been posting terrific results
Broadcom has been growing rapidly, with revenue rising 48% in its most recent quarter, an acceleration compared to previous periods. And with more growth one the way, it's little wonder why the stock has been so highly regarded over the years, and why its stellar performance may continue amid the build-out in tech.
AVGO Revenue (Quarterly YoY Growth) data by YCharts
For growth investors, what's especially encouraging is that Broadcom is growing not only its revenue but also its bottom line, a good sign that the business is generating strong margins along the way. That helps bring its valuation down, making it a more attractive option for investors.
Broadcom's stock may not be as expensive as it seems
Even though Broadcom's stock has amassed some significant gains in recent years, its valuation is not outlandish. It's trading at 65 times its trailing earnings, but that falls to a multiple of 21 when based on the future profits that analysts expect from the company in the year ahead.
Looking even further ahead, the price-to-earnings-growth (PEG) ratio considers the business's growth over the next five years. A PEG of less than 1.0 indicates the stock is cheap, given the growth potential analysts believe it has. Broadcom's stock trades at a PEG of under 0.50, well below the 1.0 cutoff. For long-term investors bullish on AI opportunities, this reinforces the value Broadcom may offer.
Is Broadcom's stock a good buy right now?
Broadcom's growth has been impressive, and it could go into another gear as its AI chip business takes off in the near future. There is some risk to consider, however, because while it's been performing exceptionally well, its valuation hinges considerably on future expectations and continued strong tech spending by hyperscalers, and on demand not slowing down. If that does end up being the case, however, then the thesis for investing in Broadcom may unravel quickly.
For investors who are comfortable with that risk and believe AI spending will remain strong for the foreseeable future, Broadcom may still be a good buy, and it may continue to outperform the market in the long run.
Should you buy stock in Broadcom right now?
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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