Broadcom (AVGO +0.03%) has been a hot-and-cold stock so far in 2026. It last reached an all-time high at the end of May but has since sold off, trading down around 20% from that level. It has been stuck in this range for nearly two months, but I think it could resume its upward trajectory before long.
What most investors fail to recognize is that Broadcom was never going to be the best investment in 2026. Instead, 2027 is looking like Broadcom's year. If that's the case, then now is the perfect time to buy, as some of the major growth catalysts haven't even hit Broadcom's business yet.
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Custom AI chips are coming to boost Broadcom's business
Broadcom does a lot as a business, but what the market is most fascinated by right now is its custom AI chips. While most companies are still using GPU-based training, they can get a boost from partnering with Broadcom and designing their own custom AI chips. These devices excel when they only have to handle one workload, and can provide superior performance versus GPU-based training in those applications. While custom AI chips aren't a fit for every activity, they can handle some major ones, which is why Broadcom has assembled an impressive list of clients, including Alphabet, Meta Platforms, Anthropic, and OpenAI.
NASDAQ: AVGO
Key Data Points
Right now, Alphabet is the only one buying a ton of custom AI chips, but all of that changes in 2027 when Broadcom's other major clients start to place orders. That's why Broadcom CEO Hock Tan has repeatedly told investors that Broadcom's AI semiconductor business will produce more than $100 billion in revenue in 2027. For reference, the AI semiconductor business generated $10.8 billion in revenue during Q2.
That indicates huge growth ahead for Broadcom, and not a ton of that has been priced into its stock.
Broadcom's stock is best valued using 2027 earnings due to the massive growth it expects that year. From this standpoint, Broadcom trades for 20 times 2027 earnings.
Data by YCharts.
Over the past decade, Broadcom's stock has had an average trailing price-to-earnings ratio of 56. That's skewed by some one-time events that affected earnings. So, if we use a more reasonable 30 times earnings valuation, if Broadcom can hit all of Wall Street's estimates and the stock trades for 30 times earnings at the end of fiscal year 2027, that would indicate that Broadcom's stock has the potential to rise 50% over the next year and a half.
That's a huge gain in a short time, and if it can pull it off, Broadcom will be one of the best investments to make right now.
