1 Critical Reason to Buy Broadcom Stock on the Dip

Broadcom (NASDAQ: AVGO) has been a solid stock pick in 2026, rising around 15% so far this year. However, it's down nearly 20% from its all-time high because of a poorly received earnings report. When you dig into why Broadcom's stock fell following that announcement, the reason looks quite silly as bears overreacted to modest guidance. Investors should be looking at this latest sell-off as a golden buying opportunity for a company whose business will explode for the remainder of 2026 and into 2027.

I think this is the most critical reason to buy the stock, as the Broadcom of today is going to look far different from the one at the end of 2027.

Image source: The Motley Fool.

Broadcom has a ton of new business coming

Broadcom does a lot as a company, but a highlight now is its custom AI chips. GPU-based computing is highly effective, but it's expensive. GPUs aren't optimized to run a certain workload because they're meant to be able to handle all types of workloads. This unspecialized nature is great for some applications, and poor for others. In AI, several workloads can be streamlined into one type where a specialized computing chip, like the one Broadcom designs, can deliver superior cost performance versus GPU-based training.

Broadcom's customer list is growing, and it now has four major clients, along with some other smaller ones. Highlighting the list are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), Anthropic, and OpenAI. Alphabet, which owns Google, is already a leader in this area, as its Tensor Processing Units (TPUs) are quite popular. The other three's custom AI chips will enter production throughout the remainder of 2026 and into 2027, which is why Broadcom has advertised massive growth.

During its Q2, AI semiconductor revenue was up 143% year over year, coming in at $10.8 billion. If you annualize that revenue total, it amounts to just over $40 billion a year. However, Broadcom expects to generate more than $100 billion in AI semiconductor revenue alone in 2027. That's massive growth, and I think that's the most critical reason to buy the stock on the dip today.

Broadcom is going to go through a major transformation over the next year as this business unit ramps up. With the market pricing the stock at 34 times forward earnings, some of this growth is priced in. However, if the stock is priced using next year's earnings estimates, that figure plummets to just 20.6 times forward earnings.

AVGO PE Ratio (Forward) data by YCharts

Broadcom makes a ton of sense to invest in now, as most of the market isn't ready for the jaw-dropping revenue growth that Broadcom will deliver over the next year and a half (and probably beyond that as well).

Keithen Drury has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.