Semiconductor companies have delivered incredible returns thanks to the growth of artificial intelligence (AI). One of the most successful is Broadcom (AVGO +2.00%), which makes custom chips for AI companies. It's up 957% over the last five years (as of Oct. 31).
If you'd invested just $100 in Broadcom five years ago, you'd now have $1,057. The same investment in the S&P 500 index, on the other hand, would be worth $209. As you can see, Broadcom has significantly outperformed the market, and there's an important lesson to be learned from its success.
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"Overvalued" isn't always a bad word
Broadcom stock really started to soar last year as tech companies ramped up their AI spending. It also received criticism for being overvalued, and for investors who rely heavily on price-to-earnings (P/E) ratios, this seemed like a fair take. By the end of 2024, Broadcom was trading at over 180 times trailing earnings.
Many would consider that a major red flag in a stock. But in this case, it shows why valuation isn't everything. Although valuations certainly matter, Broadcom is up 59% in 2025, so that hefty valuation hasn't slowed it down.
NASDAQ: AVGO
Key Data Points
Rapidly growing companies often trade at high multiples, especially when they're at the forefront of a technological innovation. Broadcom probably won't match its gains from the last five years, but as one of the top chipmakers, it's a crucial partner for several tech giants and should continue to do well.
