Over the past 20 years, much of what fuels the U.S. economic engine has shifted. For instance, oil and industrial players were the largest publicly traded companies in the country in 2005 (measured by market cap), as ExxonMobil and General Electric were worth $392 billion and $375 billion, respectively. Now, just two decades later, the list of the most valuable companies has five stocks with market caps of $2 trillion (or more), and they all hail from the technology industry.
Nvidia has ridden the unprecedented demand for artificial intelligence (AI) to a $4 trillion valuation. Microsoft and Apple are currently jockeying for second place, with market caps of $3.6 trillion and $3.5 trillion, respectively. Rounding out the top five are Alphabet and Amazon with market caps of $2.8 trillion and $2.4 trillion, respectively.
With a market cap of roughly $1.5 trillion (as of this writing), it seems the writing is on the wall that Broadcom (AVGO 0.52%) will join this select group of tech titans. The company plays a crucial role in data center infrastructure and by extension the AI landscape, and recent developments suggest it could be joining to the $2 trillion club sooner than you might expect.
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All that and a bag of chips
Broadcom has its roots in the semiconductor industry, but has expanded its product offerings to include software and security solutions that extend into broadband, mobile, cable, and data centers. The company's claim to fame is that "99% of all internet traffic crosses through some type of Broadcom technology." This also helps to illustrate the company's critical importance in the proliferation of AI, much of which takes place in data centers.
That's not all. Broadcom acquired VMWare in late 2023, and has been converting VMware Cloud Foundation (VCF) to a subscription licensing model, a strategic move that has been extremely profitable. The company reports that "well over 90%" of its 10,000 biggest customers are using VCF. Broadcom recently noted that its infrastructure software operating margin increased to 77%, up from 67% in the prior-year quarter, thanks to the successful integration of VMWare.
Broadcom's financial results show that business is booming. In the recently reported third quarter, Broadcom generated record revenue that accelerated 22% year over year to $15.9 billion, resulting in adjusted earnings per share (EPS) of $1.69, which jumped 36%.
Broadcom previously stated that its AI opportunity was between $60 billion and $90 billion by 2027 for its three existing hyperscale customers. CEO Hock Tam revealed that one of the company's major prospects (which many believe is OpenAI) approved a production order for Broadcom's custom AI accelerators, which is expected to generate additional revenue of $10 billion next year.
NASDAQ: AVGO
Key Data Points
The road to $2 trillion
Given its critical role in data center and AI infrastructure, Broadcom's technology is poised to benefit from the broad and continuing adoption of the technology.
According to Wall Street estimates, Broadcom is expected to generate revenue of $63.1 billion in 2025, giving it a forward price-to-sales (P/S) ratio of roughly 25. If the stock's P/S remains constant, Broadcom will need to generate revenue of roughly $80 billion annually to support a $1 trillion market cap.
Wall Street has bullish expectations, guiding for revenue growth of 20% annually over the coming five years. If the company hits those targets, it could achieve a $1 trillion market cap as early as 2027. However, Broadcom's growth has been accelerating in recent quarters, and the addition of a new hyperscale customer (and another in the wings) suggests those estimates are conservative and I predict the company will hit that milestone in 2026 if not sooner.
It's still early innings for AI adoption, and Broadcom is a critical player in networking and data center infrastructure. Estimates suggest the generative AI market will be worth between $2.6 trillion and $4.4 trillion annually over the next 10 years, according to global management consulting firm McKinsey & Company. Including a contribution from embedded software doubles that projection -- so the opportunity is vast.
Broadcom has profited from the robust demand for AI, fueling a stock price boom. This has led to a commensurate increase in its valuation, yet the stock still has a forward price/earnings-to-growth (PEG) ratio of 0.65, when any number less than 1 suggests an undervalued stock.
For context, Broadcom has surged 2,660% over the past 10 years, compared to gains of just 237% for the S&P 500. This helps explain why the stock is deserving of a premium.
