Ever since President Donald Trump announced a new tariff agenda on April 2, the stock market has been experiencing outsized volatility. Technology stocks in particular have been vulnerable to widespread selling, driven by fear and uncertainty.
Since the tariffs were announced earlier this month, the Nasdaq Composite has fallen 7.5% as of April 18.
One Nasdaq stock that initially took a big hit following the tariff news is semiconductor company Broadcom (AVGO +0.51%). Shares fell as much as 20% before rebounding, and they're actually down less than 1% as of this writing.
One of the biggest contributors to the stock's recovery was the company's recent stock buyback announcement. According to management, the board of directors approved the repurchase of up to $10 billion in shares through Dec. 31.
Let's explore what may have compelled management to explore a buyback and why investors may want to consider adding shares right now.
Despite near-term headwinds from tariffs, Broadcom's future still looks bright
I see these tariff policies as a mechanism for the U.S. to negotiate new trade deals. In the near term, a situation like this can cause chaos in the investment world. There are a lot of unknowns about which countries are currently discussing new trade deals with the Trump administration and where these various negotiations stand.
NASDAQ: AVGO
Key Data Points
However, smart investors know better than to get too distracted by the constantly changing tariff rhetoric.
Rather, let's look at some of the secular tailwinds in the artificial intelligence (AI) industry and explore why the moves that big tech is making bode well for Broadcom.
- Cloud hyperscalers: A few months ago, big tech reported earnings for the fourth quarter and full calendar year 2024. Among AI's most influential developers are cloud hyperscalers Microsoft, Amazon, and Alphabet. Their spending on AI infrastructure in 2025 alone is expected to be nearly $260 billion. What's even better is that Broadcom has said it already works with some of the hyperscalers. This is important because rising infrastructure spending for data centers should be a tailwind for Broadcom's networking and custom silicon services.
- Meta Platforms: Another member of the "Magnificent Seven" that plans to ratchet up its capital expenditures (capex) this year is Meta Platforms. Management forecasts it could spend up to $65 billion in capex this year, a 67% increase from last year. A big focus for Meta over the last couple of years has been designing its own silicon in an effort to move away from an overreliance on Nvidia chipsets. Meta has been working with Broadcom on this project, and given that the company appears to be doubling down on its AI ambitions, I see the ongoing infrastructure spending as a major positive for Broadcom.
Image source: Getty Images.
Why now is a great time to buy Broadcom stock
Despite the recovery in Broadcom shares over the last two weeks, the stock is still down 26% so far this year.
Data by YCharts.
Stock buybacks can sometimes be interpreted as a sign that management believes shares are undervalued. As the chart above illustrates, the ongoing sell-off in Broadcom has brought the company's valuation to its lowest level in about a year based on a forward price-to-earnings (P/E) multiple.
The valuation compression seen above might suggest the stock is oversold, but I see a more subtle reason to pounce on shares right now.
Buyback programs can take several quarters, or even years, to complete. But as mentioned above, Broadcom's current $10 billion repurchase program only runs through the end of the year. Whether the company buys back the full $10 billion or not, it's highly likely management will be repurchase some shares over the next eight months as long as they remain depressed compared to historical levels.
When you also factor in Broadcom's robust prospects thanks to ongoing infrastructure and data center spending by AI's biggest leaders, the stock ends up looking like a bargain right now. Despite the near-term volatility from tariffs, now is an opportunity to buy the dip in this leading AI growth stock.
