Down 20%, Should You Buy Broadcom Stock on the Dip? The Answer Might Surprise You

The semiconductor industry is the driving force behind the artificial intelligence (AI) revolution. Without advanced chips, developers wouldn't have the computing power to push their models forward or serve their AI software to customers.

Broadcom (NASDAQ: AVGO) supplies AI accelerator chips for data centers, which have become a popular alternative to Nvidia's (NASDAQ: NVDA) industry-leading graphics processing units (GPUs), because they can be fully customized to suit specific workloads. These accelerators are experiencing red-hot demand from hyperscalers and AI start-ups alike.

Broadcom stock is down 20% from its all-time high, partly because the broader market is in the throes of a sell-off on the back of ongoing geopolitical tensions. Could this be a great buying opportunity? Read on for the surprising answer.

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Broadcom is serving some of the world's top AI companies

Nvidia's GPUs are the best plug-and-play semiconductor solution for AI development, but hyperscalers like Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) are seeking more targeted hardware to fit their specific requirements, so they are turning to Broadcom to help them design and fabricate custom accelerators.

Alphabet's latest AI accelerator is called the Ironwood tensor processing unit (TPU), which the company used to train its latest Gemini 3 family of large language models (LLMs). The leading start-up behind the Claude chatbot, Anthropic, placed two orders for TPUs last year worth $10 billion and $11 billion, respectively, and those chips will be delivered through Broadcom in 2026 and 2027.

ChatGPT creator OpenAI and Facebook parent company Meta Platforms are two more of Broadcom's five customers for AI accelerators so far.

But Broadcom is also a top supplier of AI data center networking equipment, and demand is through the roof in this segment, too. Its Tomahawk 6 Ethernet switch regulates how fast information travels between chips and devices and it offers an industry-leading capacity of over 100 terabits per second, which is perfect for data-intensive AI workloads. But the company will one-up itself in 2027 when it launches the Tomahawk 7, which will feature double the capacity.

Revenue growth is accelerating, fueled by AI-related demand

Broadcom generated a record $19.3 billion in total revenue during its fiscal 2026 first quarter (ended Feb. 1), which was a 29% increase from the year-ago period. It marked the third consecutive quarter of accelerating growth, and demand for AI-related hardware has been the key driver of that momentum.

AI products accounted for $8.4 billion of Broadcom's total revenue during the first quarter, which was up by an eye-popping 106%. Based on management's guidance, AI revenue is expected to come in at $10.7 billion during the current second quarter (ending May 4), bringing the company's total revenue to $22 billion. Those figures represent year-over-year growth rates of 143% and 47%, respectively, so Broadcom looks to be building even more momentum.

The huge demand for AI data center hardware is giving Broadcom an incredible amount of pricing power, which is supercharging its bottom line. The company's net income came in at $7.3 billion during the first quarter, which was up 33% year over year. This is important, because earnings tend to drive stock prices.

Should you buy Broadcom stock on the dip?

Whether investors should buy Broadcom stock following its recent 20% correction might depend entirely on their time horizon. It isn't cheap right now, so it's unlikely to produce blistering gains over the next few months, but it could deliver strong returns in the long run.

Broadcom stock is trading at a price-to-sales (P/S) ratio of 23.5, which is more than double its 10-year average of 9.5. That doesn't leave much room for upside in the short term, but based on the company's rapidly accelerating revenue growth, the stock might be attractive for investors who are willing to hold onto it for a period of three to five years.

AVGO PS Ratio data by YCharts

Moreover, Broadcom's price-to-earnings (P/E) ratio is 64.5, making it twice as expensive as the Nasdaq-100 index, which trades at a P/E ratio of 30.9. In other words, Broadcom might be overvalued relative to a basket of its big-tech peers -- and for some additional perspective, Nvidia stock trades at a P/E ratio of just 36.3:

AVGO PE Ratio data by YCharts

According to Yahoo! Finance, Wall Street expects Broadcom to grow its revenue by 63% during fiscal 2026, followed by a further 44% in fiscal 2027, with the company's earnings per share forecast to grow at an even faster pace. Therefore, as I mentioned, this stock looks far more attractive on a forward basis, but that means investors must commit to holding for a period of years, not months, to maximize their chances of earning a positive return.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.