Broadcom (AVGO 1.04%) will deliver a highly anticipated quarterly earnings report on March 4. The semiconductor company is coming off a massive year, where it outperformed every "Magnificent Seven" stock except for Alphabet. Here's why Broadcom remains a top buy now.
Image source: Getty Images.
A diversified bet on AI
Perhaps the best reason to buy Broadcom is its unique diversification, especially compared to other mega-cap growth stocks. Around 90% of Nvidia's third-quarter fiscal 2026 revenue came from data centers. Broadcom's custom AI chips and associated networking hardware and software are by far its fastest-growing segment.
But Broadcom is a much more diversified company than Nvidia. For its upcoming first-quarter fiscal 2026, Broadcom is forecasting AI semiconductor revenue of $8.2 billion compared to total revenue of $19.1 billion. It's a big jump from a few years ago, but other semiconductor and infrastructure software still dominate Broadcom's business.
In this vein, Broadcom is a particularly good buy for investors who are worried about overextended hyperscale spending. Broadcom is heavily benefiting from increased hyperscaler capital expenditures (capex), with Alphabet expanding order volumes for its Tensor Processing Units (co-developed with Broadcom) to maximize data center performance and cost efficiency. But Broadcom is also well-positioned to withstand a downturn in spending.
Amazon plans to spend a mind-numbing $200 billion on 2026 capital expenditures. Meanwhile, other cloud giants, from Microsoft to Alphabet and Oracle, are pouring money into data center spending as they race to capture infrastructure demand. However, there's a risk that AI capex could decline in the coming years if spending enters a cyclical downturn. Broadcom's diversification would be an advantage in this environment.
NASDAQ: AVGO
Key Data Points
A hidden gem dividend stock
Broadcom pays a stable and growing dividend and is arguably one of the underrated dividend growth stocks to buy now because it has increased its dividend for 15 consecutive years, often at a very rapid rate.
Don't let Broadcom's 0.8% yield fool you. Consider that, over the last decade, Broadcom's stock price is up over 20-fold, but its dividend has increased by more than 10-fold, showing that Broadcom has passed along growing profits directly to shareholders. So the only reason the yield is low is that the stock has done incredibly well.
Broadcom stock isn't priced for perfection. It trades at 32.3 times forward earnings, which is reasonable for a high-margin, high-growth business.
A balanced buy for growth investors
Investors interested in Broadcom should watch for updates on major customer orders for its AI chips. In recent earnings calls, Broadcom has discussed multiple, multi-year custom chip deals with hyperscalers -- providing a clear runway for future growth.
Investors will be curious to hear how those deals are progressing and how Broadcom is converting expected revenue into realized revenue. Additionally, investors should monitor Broadcom's spending, which could weigh on margins as it ramps up production.
Broadcom is playing an increasingly vital role in AI data centers. The company's growing dividend, reasonable valuation, and diversified business model make it a top buy for investors who are worried about a cyclical slowdown in AI spending but who also want to capture upside potential.
