There are currently a dozen companies that are worth $1 trillion or more, but only four are currently members of the elite $3 trillion club: Nvidia at $4.6 trillion, Apple at $4 trillion, Alphabet at $3.9 trillion, and Microsoft at $3 trillion.
I am convinced that Broadcom (AVGO 1.07%) has what it takes to join this exclusive fraternity in the years to come. The company plays a pivotal role in the data center space, and the current buildout is driving strong financial and operating results.
The data center and semiconductor specialist has a market capitalization of $1.6 trillion (as of this writing), so investors who buy Broadcom right now could generate a return of 86% if it earns its membership in the $3 trillion club. The evidence suggests it could get there sooner rather than later.
Image source: Getty Images.
More than just AI
There's no denying that artificial intelligence (AI) has dominated the conversation in recent years, but that has become a double-edged sword. Questions have swirled about which semiconductors will be key to AI's future.
What sets Broadcom apart from its rivals is that, while it benefits from AI chip sales, the company's other solutions represent a much broader opportunity. Broadcom provides broadband and wired networking, enterprise security, data center solutions, mainframe software, and mobile and wireless products. The breadth of the company's products and services makes it much more than just an AI chip supplier.
That said, Broadcom is widely considered the industry leader in Application-Specific Integrated Circuits (ASICs), semiconductors that can be customized to be more energy efficient for specific use cases. ASICs are increasingly viewed as a worthwhile alternative to graphics processing units (GPUs), which currently dominate AI processing. That's why Alphabet relies on Broadcom for its custom-made Tensor Processing Units (TPUs).
NASDAQ: AVGO
Key Data Points
Stellar financial results
Broadcom's financial results are revealing. In the fourth quarter, the company generated record revenue of $18 billion, up 28% year over year, driving adjusted earnings per share (EPS) of $1.95, a 37% increase. For the full fiscal year, while AI-related revenue jumped 65% to $20 billion, that was less than one-third of Broadcom's total revenue of $64 billion, which illustrates that the company offers much more than just AI.
Management is forecasting accelerating growth. For Broadcom's fiscal 2026 first quarter (ended Feb. 1), the company is guiding for revenue of $19.1 billion, which would represent an increase of nearly 29%, fueling adjusted EBITDA of $12.8 billion, up 30%.
Broadcom's path to $3 trillion
Wall Street expects Broadcom to generate revenue of $97 billion in fiscal 2026, giving the stock a forward price-to-sales (P/S) ratio of 16. Assuming its P/S ratio remains constant, the company will need to generate revenue of $180 billion to support a $3 trillion market cap.
Data by YCharts
As you can see from the chart above, Wall Street predicts Broadcom's revenue will grow to $167 billion by 2028, putting it within striking distance of the $180 million needed for a $3 trillion market cap. However, Broadcom tends to surprise to the upside, beating analysts' consensus estimates, so it could surpass that threshold even sooner.
The data center boom is ongoing and is expected to attract nearly $7 trillion in capital expenditures globally by 2030, according to McKinsey & Company. As a leading provider of data center infrastructure, Broadcom is well-positioned to benefit from these secular tailwinds. Furthermore, as its ASICs are increasingly viewed as an economical alternative to GPUs, Broadcom's opportunity will likely expand.
Despite the recent surge in its stock price, Broadcom still sells for roughly 24 times next year's expected earnings. Using the even more appropriate price/earnings-to-growth (PEG) ratio yields a multiple of 0.25, when any number less than 1 is the hallmark of an undervalued stock.
Taken together, I believe the evidence is clear: Broadcom stock is a buy on the road to a $3 trillion market cap.
