In a move that surprised some investors and analysts, Apple (AAPL -1.22%) signed a new multi-billion deal with Broadcom (AVGO -4.31%), which will drive the development of components related to 5G radio frequencies. The announcement sent Broadcom stock higher as the relationship between the two companies expanded.

Of course, this semiconductor stock was already on the rise before the announcement, so the added news now has the stock trading at record highs. Given its already elevated stock price, does this latest deal make Broadcom a buy, or did investors miss their opportunity?

The Apple-Broadcom deal

Broadcom's chip segment develops semiconductors for other companies. It invests billions per year in research and development, and it employs engineers near its large clients to develop solutions collaboratively. One fan of its approach is Apple, which was an important Broadcom client before this deal. Broadcom designs the chips that power the Wi-Fi hotspot for the iPhone and other products, and this relationship accounted for about 20% of Broadcom's revenue in 2022.

Much remains unknown about the new deal. Neither company disclosed financial terms, although Apple said the agreement was part of a commitment made in 2021 to invest $430 billion in the U.S. economy.

Moreover, Apple has recently brought more chip development in-house and wanted to develop its own Wi-Fi and Bluetooth chips, according to a Bloomberg report. Until recently, this led to fears that Apple would scale back its relationship with Broadcom. Hence investors probably looked at this perceived turnabout as a surprise.

The state of Broadcom's stock

As mentioned before, investors expressed their surprise at the deal by bidding Broadcom stock up to record highs. Consequently, Broadcom's stock price is up more than 25% over the last 12 months.

And even after declining for most of 2022, revenue and profits continue to surge. In the first quarter of fiscal 2023 (ended Jan. 29), revenue of $8.9 billion rose 12% year over year, primarily driven by a 17% increase in product sales.

During that time, it limited increases in the cost of revenue and reduced operating expenses. That helped it report a quarterly net income of $3.8 billion, rising 57% compared to the same quarter in fiscal 2022.

Surprisingly, its rising stock price has not made Broadcom an expensive stock, as it sells at a P/E ratio of 23. That multiple is above multi-year lows, but it still trades at a lower valuation than Apple, Nvidia, and Advanced Micro Devices. Additionally, Broadcom remains one of the more lucrative dividend stocks in the semiconductor industry. At $18.40 per share annually, it claims a dividend yield of about 2.5%, well above the 1.6% average of the S&P 500.

Also, that payout has risen annually since 2011, with the dividend increasing by 12% after the most recent increase. This cash return provided stability amid the stock's considerable growth. And because the company's $3.9 billion quarterly free cash flow far exceeded the $1.9 billion dividend cost for the period, its payout should stay safe.

Should I consider Broadcom?

Despite a multi-billion deal with Apple, it is not too late to buy Broadcom stock. Admittedly, most investors would probably like more details on the terms of this specific deal.

However, Broadcom posted solid growth in fiscal Q1 before the deal. Due to its P/E ratio of 23 and a high dividend, the stock appears undervalued. And with the company strengthening its relationship with Apple, Broadcom stock will likely continue to move higher over time.