Prediction: This Artificial Intelligence (AI) Stock Will Be Worth $2 Trillion in 3 Years

Broadcom (NASDAQ: AVGO) isn't the first company that comes to investors' minds when discussing mission-critical suppliers to the AI arms race. Companies like Nvidia and Taiwan Semiconductor Manufacturing are often mentioned, but Broadcom hovers in the background. However, Broadcom is a formidable company primed to benefit from a massive boom from two of its AI products.

Although Broadcom is a $1.2 trillion company right now, I could easily see it rising to a $2 trillion company within three years. That would easily allow it to outperform the market, which makes it a fantastic option to consider now.

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Broadcom makes two critical AI products that will dramatically grow in use

Broadcom isn't top of mind for many investors because it isn't laser-focused on AI. It has products sprawling from mainframe software to cybersecurity to virtual desktops (thanks to its VMware acquisition). However, many of Broadcom's AI products are critical to data center infrastructure.

Broadcom's AI offerings are split into two categories: connectivity switches and custom AI accelerators, which it calls XPUs. Starting with the connectivity switches, data centers have computing clusters with thousands of GPUs that constantly process AI workloads. Often, an AI prompt may require multiple GPUs to process the answer, and data centers need devices to stitch together the multi-piece answer. That's where Broadcom's connectivity switches come in, and they will only become more important as we transition into the next phase of AI.

Although all AI hyperscalers are working on training better models, we're starting to see widespread usage of AI models in business and personal life. This means the AI hyperscalers must start thinking about inference, which occurs when an AI model is prompted for an answer. More inference capacity boosts the need for these connectivity switches, boosting Broadcom's sales.

Another product that has Broadcom excited is its XPUs. Its custom AI accelerators are an alternative to GPUs, as they can also process multiple calculations in parallel. The difference between an XPU and a GPU is that XPUs are designed for a specific workload and don't have the flexibility of a GPU. Because these XPUs are designed in collaboration with the end user, the AI hyperscalers can tailor the processing unit to their workloads, optimizing these units for whatever workload they would like. This allows XPUs to outperform GPUs in specific use cases, but it also does something even more important for its clients.

It cuts Nvidia out of the picture.

It's no secret that the AI hyperscalers have a love-hate relationship with Nvidia, as Nvidia makes top-notch products but it charges an incredibly high premium for them. Nvidia's profit margin is over 50%, which is practically unheard of for a hardware company. So if clients can get the same performance out of their system without paying a significant chunk of money to fatten Nvidia's bottom line, they will do it. By purchasing XPUs, they only need to pay Broadcom a fraction of what they pay Nvidia, although Broadcom is still slated to make a ton of money from the design collaboration of these units.

Broadcom's role in the AI world will only expand, but is this enough for its stock to nearly double in three years?

Broadcom's revenue could double in the next three years

In fiscal year 2024, Broadcom's total revenue was $51.6 billion. Of that, only $12.2 billion was AI-related revenue.

AVGO Revenue (TTM) data by YCharts

However, Broadcom expects its AI-related revenue to rapidly ramp up over the next few years, reaching $60 billion to $90 billion by FY 2027. Broadcom confirmed these expectations by stating that its AI semiconductor growth rate during 2025 will extend into 2026, which tracks perfectly with the $60 billion to $90 billion in AI-related revenue for FY 2027.

If you subtract 2024's AI-related revenue from its total, Broadcom's total was $39.4 billion. Even if its base business doesn't grow, if you add that figure to the bottom end of the AI revenue guidance, you'd get a company that generates around $100 billion in annual revenue. That's the absolute low side of the projection, which indicates that there is a margin of safety in this projection.

With revenue likely more than doubling from now until 2027 (its trailing-12-month revenue total is $57 billion), I'm fairly confident that the stock will at least double from now until then. That will be enough to vault Broadcom into the $2 trillion valuation level, making the stock a successful investment.

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Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.