Broadcom Stock Is Back Where It Ended 2025, but Its Earnings Are About 43% Higher. Is It a Buy?

Broadcom (NASDAQ:AVGO) stock sits near $350 as of this writing, about 29% under its 52-week high of $495. Much of that drop came the day after the chip designer's June 3 earnings report. Shares fell about 13% that session as investors reacted to CEO Hock Tan's decision not to lift the company's artificial intelligence (AI) chip forecast.

But the forecast has moved since then, and it moved up.

The company's profits have risen, too. Broadcom's non-GAAP (adjusted) earnings per share over the last four quarters are about 43% higher than in fiscal 2025. But the stock is back to about where it ended 2025.

Put another way, investors are paying the same price for a far more profitable company.

Sure, the market does have one legitimate worry, which is how few customers the forecast rests on. But I think the discount has gone further than that risk justifies.

Image source: The Motley Fool.

The forecast went up, not down

In June, Tan said Broadcom's AI chip sales would hit around $56 billion in fiscal 2026 before clearing $100 billion the year after.

With the company's Sept. 2 earnings report, both numbers rose. Broadcom now expects AI sales of $58 billion this fiscal year and around $115 billion for fiscal 2027, a figure Tan said is backed by supply the company has already locked in. He added a new target, too: $230 billion for fiscal 2028.

Showing how fast the business is growing, Broadcom's AI chip sales hit $16.7 billion over the three months ended Aug. 2 (its fiscal third quarter of 2026), up 221% from a year earlier. That growth rate has sped up every quarter this fiscal year. Growth was 106% in the fiscal first quarter, then 143% in the second. Management sees $21.7 billion for fiscal Q4, up 236%. And profit is speeding up right along with sales. Adjusted earnings per share surged 96% over the year-ago quarter, up from gains of 54% and 28% in the two quarters before it.

Tan also said on the earnings call that Broadcom is on track to clear $30 in earnings per share in fiscal 2028.

Cheaper by almost half

At its record close in early June, Broadcom's stock was valued at about 66 times its adjusted earnings per share over the prior four quarters. At roughly $350, the stock trades at about 36 times those adjusted earnings.

Broadcom spent most of the last two years trading between about 40 and 55 times its adjusted earnings. It's been this cheap by that measure just briefly, mainly in the spring of 2025.

Measured against analysts' profit estimates for fiscal 2027, the price comes out to around 18 times earnings. And the price is below 12 times earnings if Broadcom reaches the $30-plus in earnings per share Tan is targeting for fiscal 2028. At that price, investors seem to be paying as if a good part of the forecast might not come in on time.

Is the customer list too short?

The worry I take most seriously is concentration, and it's rising. Broadcom estimates its top five end customers accounted for around 55% of revenue in fiscal Q3, up from about 45% in fiscal Q2 and about 40% a year before.

Tan counts six custom-chip customers, and he expects Anthropic to become the biggest of them in 2027. That's probably why Broadcom shares lost around 5% on Sept. 14, after Anthropic CEO Dario Amodei put out an essay arguing for slower AI model development. Tan told CNBC that day that the debate hadn't changed his fiscal 2027 and 2028 targets.

For two of the six, Anthropic and OpenAI, Broadcom created a financing platform with Apollo and Blackstone to fund their deployments. It has agreed to backstop up to around $29 billion of one customer's lease payments, and it may provide residual value guarantees.

Yes, if one of these labs struggles to fund its build-out, a big part of fiscal 2027 and 2028 revenue might slip. But Tan said the other four customers are financially solid enough to fund their own deployments.

Ultimately, given how short the customer list is, I see why investors would pay less for Broadcom than they did at the June peak. But I don't think that justifies paying about the same price as at the end of 2025 for a business whose adjusted earnings per share are about 43% higher.

Is Broadcom stock a buy 29% below its high? I think it is. With this much of the forecast resting on a few customers, though, I'd consider buying gradually rather than all at once.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Blackstone and Broadcom. The Motley Fool has a disclosure policy.