Broadcom (AVGO -3.17%) has been an OK investment in 2026, rising by about 14% year to date. That's barely a market-beating stock, but the share price is also well down nearly 20% from the peak it set at the end of June. Yet the future of the company is looking as bright as ever.
It has some major catalysts arriving in 2027 that will bring the company to new levels, as its AI semiconductor revenue is expected to exceed $100 billion. For reference, its AI semiconductor revenue in the second quarter was $10.8 billion, or about $43 billion annualized.
Is that enough to warrant buying the stock? Let's take a look.
Image source: The Motley Fool.
Only some of 2027's growth is priced into the stock
This major expected growth in 2027 is not an unknown factor in the market. Broadcom has been forecasting it for some time, but it's starting to happen. Broadcom is making huge strides in this area thanks to its custom AI chips, which are emerging as popular alternatives to graphics processing units (GPUs). GPUs excel at providing massive parallel processing power in a wide variety of settings, which makes them fantastic for general use. Still, their flexibility is wasted when a workload type has been configured a certain way and is predictable.
As a result, several AI hyperscalers have partnered with Broadcom to design application-specific integrated chips -- custom-built products that can only handle the narrow types of workloads that they will see. These custom AI chips are more cost-effective than GPUs for those specific workloads, which makes them very popular options for AI hyperscalers looking to optimize their capex spending.
NASDAQ: AVGO
Key Data Points
Next year, Broadcom has several of these orders hitting the system, which will allow it to expand beyond the handful of clients that it's serving right now. It helped its biggest client, Alphabet (GOOG -0.05%) (GOOGL +0.06%), develop the Tensor Processing Unit (TPU). These chips are becoming more popular, and are a big reason why Google Cloud is growing so quickly.
There's a lot of positivity brewing around Broadcom, and fortunately for investors, it hasn't all been priced into the stock quite yet. While Broadcom may trade for a somewhat pricey 34 times this year's earnings estimates, when 2027's are used, it falls to a mere 20 times forward earnings.
AVGO PE Ratio (Forward) data by YCharts.
That's a pretty good deal for Broadcom's stock, especially if the company can exceed expectations, as it has throughout most of the AI race. As a result, I think Broadcom is a smart stock to buy on the dip. It won't stay beaten down for long once 2027's orders start rolling in, creating huge revenue and profit growth.
