Up until recently, Broadcom (AVGO +4.75%) was having a poor 2026. The stock declined by roughly 15% from January through March, only to begin a surge in April that has shares sitting up 23% year to date. However, Broadcom stock has been a remarkable investment for years now, up a staggering 860% over the past five years alone.
Investors who passed on buying the recent dip may be kicking themselves, but it's not necessarily too late to buy the stock if you're willing to hold shares for a while. After all, buying the dip over the past five years has continued to work in your favor.
Here's why Broadcom is likely still worth buying, despite its recent run-up to yet another all-time high.
Image source: The Motley Fool.
AI growth is adding yet another jewel to Broadcom's crown
Broadcom's success isn't anything new. The company has been a fantastic stock to own for years preceding the artificial intelligence (AI) boom. Broadcom has long been a leader in networking chips and has diversified into enterprise infrastructure software.
What's new and exciting for Broadcom is its rise to the forefront of custom silicon for AI hyperscalers. Many of the largest AI companies investing in data centers have begun looking to alternatives to Nvidia's GPUs. As a result, Broadcom has leveraged its chip expertise to design XPUs for several high-profile customers, including Alphabet, Anthropic, OpenAI, and Meta Platforms. Broadcom customizes its XPUs for each client's needs, resulting in more efficient performance.
Nvidia isn't going away, as there's simply too much need for computing power in today's AI landscape. The pie is plenty large enough for everyone to eat. That said, it's never wise to put all the eggs in one metaphorical basket. These AI companies wisely don't want to give Nvidia too much control over their AI infrastructure.
Drilling into the AI numbers
Broadcom's XPU business is still in its early innings. These chips are especially useful for inference workloads, which involve applying AI models to real-world applications. The story had been about training AI models, but as actual AI adoption continues, there could be an increasing shift from training to inference.
The company earned $20 billion from AI last year, with much of that coming from networking chips. As these XPU deals begin to ramp up, look for AI revenue to skyrocket. CEO Hock Tan has hinted that AI revenue could surge past $100 billion by next year, a potential fivefold increase in Broadcom's AI sales.
Broadcom's total revenue in 2025 was $63.9 billion, so the XPU opportunity could more than double the company's size in relatively short order. That explosive growth is why Broadcom's valuation is more attractive than you might expect for a stock that's risen so much, so quickly.
NASDAQ: AVGO
Key Data Points
Less value at these prices, but enough to buy the stock
Sure, it would have been better to have bought Broadcom stock a couple of months ago, when it was in a slump. The stock's recent run has pushed its price-to-earnings ratio from under 60 to over 80 in a matter of weeks. But there is still enough value here to justify hitting that buy button.
The consensus among Wall Street analysts is that Broadcom's earnings will grow at an annualized rate of 41% over the next three to five years. That makes sense, considering the anticipated windfall in AI revenue from Broadcom's XPU deals.
So, while Broadcom stock trades at a very high valuation, it has the growth to justify it. That's a PEG ratio of about 2, which isn't a bargain, but it's reasonable for investors willing to buy and hold shares, letting the business grow into that valuation over time.
