Patience is what separates short-term traders from long-term wealth builders. According to J.P. Morgan Asset Management, a $10,000 investment in the benchmark S&P 500 index from July 1, 2005, to June 30, 2025, earned an annualized return of 10%. However, when only the 10 best trading days in this period were missed due to selling, the annual return fell to 5.6%.
While this may hold for the overall market, all stocks are not created equal. Only a few are resilient enough to reward long-term investors. According to Hendrik Bessembinder’s study “Do stocks outperform Treasury Bills?,” just over 4% of stocks managed to push the stock market’s returns over that of Treasury bills from 1996 to 2017. Hence, it is essential to recognize these high-quality stocks to benefit from the buy-and-hold strategy in the long run.
If I could only buy and hold one such stock, it would be Broadcom (AVGO -1.98%). Although Nvidia emerged as the poster child of the ongoing artificial intelligence (AI) revolution, Broadcom is also playing a crucial role in the global AI infrastructure buildout. Shares of this semiconductor and networking giant gained over 2,780% in the past decade and over 51% so far in 2025. Yet, the shares could continue to go even higher in the next few years. Here’s why.
Image source: Getty Images.
Custom silicon and networking business
Broadcom’s custom silicon business is showing solid traction. This is evident considering that the company ended the third quarter of fiscal 2025 (ending Aug. 3, 2025) with a record $110 billion backlog, of which at least half is related to semiconductors.
In the third quarter, AI semiconductor revenues soared 63% year over year to $5.2 billion, driven by strong demand for custom accelerators from its three main hyperscaler clients. The company also secured $10 billion worth of confirmed production orders for its AI racks, which are based on custom accelerators, from a fourth major client.
Going beyond these four key clients, Broadcom entered into a multiyear strategic collaboration with OpenAI to co-develop and deploy 10 gigawatts of custom AI chips and Ethernet-based network systems. This deal positions Broadcom as a preferred semiconductor and networking partner to build and scale AI clusters.
Broadcom is also seeing exceptional momentum in its AI networking business. The company’s Tomahawk switches and Jericho Ethernet fabric routers are used extensively by data centers for scale-up networking (connecting GPUs and XPUs within a rack to share memory) and scale-out networking (connecting racks in a data center). Additionally, these Jericho fabric routers are also used to build AI clusters comprising over 100,000 GPUs or accelerators, which are interconnected yet spread across multiple sites. The company launched Jericho4 in 2025 to further meet the increasing bandwidth needs of these expanding AI clusters.
All these factors have resulted in multiyear revenue visibility for Broadcom.
Improving software mix
Broadcom’s expanding software business is helping drive up the company’s margins. In the third quarter, infrastructure software revenue rose 17% year over year to $6.8 billion. Infrastructure software accounted for nearly 42% of the company’s total revenues in the third quarter. The business reported a gross margin of 93% and an operating margin of 77%. The higher-margin software business generates recurring subscription-based revenue streams, which helps reduce downside risk for the company.
The acquisition of VMware has proved to be a smart move for Broadcom. In 2025, the company released VMware Cloud Foundation (VCF) 9.0, which offers enterprises a secure and cost-effective alternative to public cloud environments. The company is already seeing strong adoption of VCF 9.0 amongst large enterprise clients.
Financial strength
Broadcom’s profitability metrics and balance sheet reflect exceptional financial strength. The company’s revenues jumped 22% year over year to a record $16 billion, while adjusted operating margin was a solid 65.5%. The company generated $7 billion in free cash flow, representing 44% of revenue, in the third quarter. Broadcom also ended the third quarter with $10.7 billion in cash and $66.3 billion in gross debt.
Valuation
Broadcom currently trades at 35.8 times forward earnings, which is quite expensive. However, the premium valuation also highlights Wall Street’s confidence in the company’s custom silicon, networking, and infrastructure software businesses.
The valuation could remain elevated if revenue and earnings growth continue at a rapid pace. Analysts expect the company’s revenues to increase from $51.57 billion in fiscal 2024 (ending Nov. 3, 2024) to $133 billion in fiscal 2028, while adjusted earnings per share are expected to soar from $4.87 to $15.3 in the same time frame. Hence, considering that the valuation multiple remains mostly stable at 35 times, we can expect the share price to be around $535 in the next three years. This implies an upside of nearly 56% from its last closing price as of Oct. 14.
While the gains may not seem huge, they are still impressive for a stable and mature stock with minimal downside risk. Hence, the stock may prove an impressive buy-and-hold pick in the long run.
