Is Broadcom a Buy After Falling 9% in One Day?
Key Points
AI fears have been overblown lately, with Broadcom being one of the casualties in recent weeks.
A 9% drop today comes after the Democrats made big gains during the midterms while campaigning against data centers.
Chip demand remains excellent, with Broadcom projecting $230 billion in fiscal 2028 AI semiconductor revenue, and international data center expansion helps bypasses recent political changes.
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Broadcom (NASDAQ: AVGO) dropped by 9% as artificial intelligence (AI) fears continue to compound. Financing risks and questions about the ROI on AI investments dominated October, and midterm results are the new key item in November.
The growth stock was once approaching $500 and is now under $300 at the time of this writing. However, this drop does not correlate with the status of Broadcom's fundamentals. The dip looks like a good buying opportunity for long-term investors.
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Chip demand isn't going anywhere
It's always good to look at a company's recent earnings results and guidance before making a decision regarding its stock. In this case, Broadcom delivered superb results.
Revenue jumped by 48% year-over-year, with AI semiconductor revenue doing the heavy lifting. That part of the business was up by 143% year-over-year and represented almost half of total sales.
Furthermore, Broadcom guided for AI semiconductor revenue to more than triple in its fiscal 2026 third quarter, which the company will report in early December. The momentum is not limited to 2026. The chipmaker is on record anticipating $115 billion in AI semiconductor sales in fiscal 2027, and that number is expected to double to $230 billion in its fiscal 2028.
Broadcom also expects more than $30 in earnings per share (EPS) in its fiscal 2028. That implies a forward price-to-earnings (P/E) ratio below 10 at current levels. The fact that Broadcom guided for fiscal 2028 shows that chip sales are still heating up.
International data centers are a backup option
Democrat victories in the midterm do not mean that the AI buildout is canceled. Regulations may get stricter, and future tax breaks may be less generous, but it's extremely unlikely that Democrats order a complete halt for the entire industry.
The AI buildout isn't just producing data centers. It's also creating jobs, and data center developers are investing directly into communities.
Even if Democrats clamp down on data centers harder than expected, especially in Texas, tech giants have been investing in international data centers for years. For example, Alphabet recently announced a $15 billion investment in a Malaysian data center.
Hyperscalers have been more than happy to buy AI chips, including the ones that Broadcom creates. While Nvidia is the undisputed leader in the GPU industry, Broadcom has established itself as the firm leader in the Application-Specific Integrated Circuit (ASIC) industry.
Whether large data centers are primarily built in the U.S. or international countries in the future remains anyone's guess, but all of those facilities will need chips. Tech spending isn't going down and continues to trend upward. Broadcom remains well-positioned in the AI boom despite the ongoing correction.
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Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Nvidia. The Motley Fool has a disclosure policy.
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