Broadcom Just Gave Investors Another $30 Billion Reason to Buy the Stock

It's been an up-and-down year for Broadcom's (NASDAQ: AVGO) stock, which is now up around 15% on the year, as of this writing, despite being nearly 20% off its highs.

While the stock has pulled back this summer, the company recently gave investors something to cheer about when Apple pledged it would spend more than $30 billion on custom Broadcom-based chips and wireless connectivity technologies in the coming years.

Unlike some other large Broadcom deals, this one is more focused on wireless technology. As part of the deal, Broadcom will spend $1.5 billion on expanding and modernizing a facility in Fort Collins, Colorado, that produces advanced radio frequency components and cutting-edge wireless connectivity technologies.

Image source: The Motley Fool.

Broadcom's non-AI business has struggled, but last quarter the company said it saw a clear path toward "a full cyclical recovery." This deal should help with that, and add another growth element for Broadcom.

That said, Broadcom's AI business remains its biggest opportunity, and on that front, the company is poised to see some massive growth in the coming years. The company's biggest growth driver is its ASIC (application-specific integrated circuit) business, where it helps customers turn their designs into custom AI chips that can be mass-produced.

Broadcom helped Alphabet design its highly successful Tensor Processing Units (TPUs), and it is currently riding the huge ramp-up in these chips as Alphabet's cloud computing business is booming and it spends aggressively on AI infrastructure.

Broadcom's role in helping Alphabet design TPUs also led to other hyperscalers (owners of large data centers) enlisting Broadcom to help them create their own custom AI chips. The company has said it will see its custom chip revenue exceed $100 billion in fiscal 2027, which is a huge jump from the $64 billion in total revenue and $20 billion in AI revenue it produced in fiscal 2025.

Analysts at Citigroup, meanwhile, have projected that the company's AI revenue could surge to $180 billion in 2028.

Time to buy the stock

After getting caught in the AI chip sector sell-off, Broadcom trades at a forward P/E of just above 20.5 times fiscal 2027 estimates. That's a bargain for an AI stock that is poised to see such strong growth in the coming years.

Between its custom chip business, networking portfolio, and the turnaround in its non-AI chip business (as highlighted by the Apple deal), Broadcom is very well positioned moving forward. I own the stock and would be a buyer on this dip, as the company looks set to be firing on all cylinders in the coming years.

Citigroup is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Alphabet and Broadcom. The Motley Fool has positions in and recommends Alphabet, Apple, and Broadcom. The Motley Fool has a disclosure policy.