The current stock market's drastic moves may be giving some investors whiplash. However, plenty of stocks are worth buying even after Wednesday's massive rise. One of those is Broadcom (AVGO +4.69%), as the market hasn't priced in the future growth of an exciting product line.
At one point, Broadcom's stock was down around 40% from its all-time highs, but has since rebounded to be down around 30%. Whether you're paying a discount of 25% or 40% from its all-time high, there isn't a lot that's going to derail Broadcom, and investors should use this opportunity to load up on shares.
Broadcom's custom AI accelerator business is set to boom
Narrowing down what Broadcom does in this form is incredibly hard to do. It has its fingers in places from cybersecurity to mainframe software to data center connectivity switches. However, some of the biggest focuses in the company are virtual desktop offerings and its custom artificial intelligence (AI) accelerators.
Broadcom acquired VMware in late 2023 for $69 billion to enter the virtual desktop space. This was an expensive price tag, but VMware has been a solid addition and has given Broadcom some much-needed growth. However, the growth that VMware has provided Broadcom has nothing on its custom AI accelerator business.
NASDAQ: AVGO
Key Data Points
Broadcom has helped a handful of AI hyperscalers design their own custom AI accelerators, which can be used in place of a GPU. Broadcom calls these devices XPUs, and XPUs can be configured to outperform GPUs when the workload is set up properly. This makes XPUs less flexible than GPUs, but if the only thing these devices will be tasked with is running AI workloads, then optimizing the design for this particular workload is a great idea.
Right now, Broadcom's XPUs have three primary customers. However, it isn't public information who these clients are. If you hear an AI hyperscaler discussing its own AI training chip, there's a chance it was designed in collaboration with Broadcom. Broadcom estimates that the addressable market of these XPUs will reach $60 billion to $90 billion by 2027, and that's just with three clients.
Broadcom is also on track to launch XPUs for two more clients by the end of this year and has two additional hyperscalers that recently selected it to help design their XPUs.
This is excellent news for investors, as many of these AI hyperscalers are attempting to push the limits of what's possible, and these XPUs are a great way to do it.
However, the market isn't pricing in this massive growth quite yet, which allows investors to get a deal on the stock.
Broadcom's stock is attractively priced considering the growth that's coming
Right now, Broadcom's stock trades at 28 times forward earnings.
AVGO PE Ratio (Forward) data by YCharts
That's not a cheap price tag, but it isn't as expensive as some AI picks, either. In fiscal year 2025, Broadcom is expected to generate around $62.5 billion in revenue, up from $51.6 billion in fiscal year 2024. In fiscal year 2024, which ended Nov. 3, 2024, XPUs and networking switches (another high-growth area for Broadcom) generated $12.2 billion in revenue.
So, even if Broadcom captures half of the market by 2027 ($30 billion to $45 billion), its revenue will nearly double from that segment alone. That does not include any of the other growth it gets from its legacy business or VMware.
Broadcom is in a great position to cash in on the next phase of AI investments and represents a great stock to buy right now. Even if you missed out on the massive dip that could be bought on Tuesday and Wednesday morning, I'd still consider Broadcom an excellent AI investment right now.
