AVGO Stock’s Record Run: Time to Buy, Hold, or Take Profits?

Broadcom (AVGO) has run hard in 2025, with its stock up 45% year-to-date, outperforming the tech-heavy Nasdaq Composite Index ($NASX) gain of 10%. In fact, AVGO has soared higher than most of the tech giants in the "Magnificent Seven" this year. The stock’s rally has largely been fueled by a combination of increasing artificial intelligence (AI) demand for semiconductors, higher-margin software revenue following the VMware acquisition, and consistent profitability, which has delighted investors looking for cash flow and dividends.

Let’s find out if it is time to buy, hold, or take profits.

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AI Revenue: The Engine Behind The Rally

Broadcom is a global tech company that designs and supplies a wide range of semiconductors and infrastructure software (after acquiring VMware), which are used in data centers, networking, wireless communications, storage, and enterprise IT.

In the third quarter of fiscal 2025 (ended Aug 3), Broadcom’s total revenue of $16 billion, a 22% year-over-year (YoY) increase, was largely driven by the explosive rise of AI demand and ongoing VMware integration success. Consolidated adjusted EBITDA totaled $10.7 billion, with a gross margin of 78.4%, helped by robust software contribution and favorable product mix. Adjusted earnings totaled $1.69, up 36.3% YoY. Both revenue and earnings topped consensus estimates. The semiconductor solutions segment generated $9.2 billion in revenue, a 26% increase YoY, with AI driving the majority of the gain. AI chip revenue hit $5.2 billion, a remarkable 63% YoY rise and the tenth consecutive quarter of strong AI growth.

During the earnings call, analysts pressed Tan on the sustainability of Broadcom’s AI boom, particularly in its XPU (custom AI chips) business. Management responded that Broadcom's XPU division currently accounts for 65% of AI revenue, with growth only accelerating. The company noted the sustained strength of its three main hyperscale customers, as well as the addition of a new fourth customer that will drive future growth.

This is another factor that has fueled AVGO stock's recent rally. The company received a $10 billion AI rack order from a new qualified XPU client. While Broadcom has not revealed the customer's name, according to CNBC, many analysts speculate it is OpenAI.

Story Continues

Broadcom expects delivery to occur in a single quarter, the third quarter of fiscal 2026. This means a rapid increase in production and deployment. CEO Hock Tan stated that with this addition, Broadcom anticipates fiscal 2026 AI revenue to be much greater than previous predictions. The infrastructure software segment generated $6.8 billion in revenue, up 17% YoY, beating expectations, thanks to VMware integration efficiencies. Broadcom generated 44% of revenue ($7 billion) as free cash flow, allowing it to pay out $2.8 billion in dividends during Q3. It also maintained a robust balance sheet with $10.7 billion in cash against $66.3 billion in gross debt.

Importantly, Tan has reaffirmed his commitment to lead Broadcom through 2030, providing leadership stability at a critical time for the company’s transformation. Tan also boasted about the company's record $110 billion backlog, at least half of which is semiconductors, with AI accounting for the vast majority of it. This backlog gives investors visibility into long-term growth, which is especially important given the long lead periods and deep strategic commitments associated with AI projects.

What Does Wall Street Say About AVGO Stock?

Analysts expect Broadcom’s revenue to increase by 22.7% in fiscal 2025 to $63.3 billion, followed by a 38% increase in earnings. Furthermore, revenue and earnings could rise by 32.1% and 36%, respectively, in fiscal 2027. Currently, AVGO stock trades at a premium of 37x forward earnings, compared to its five-year average price-to-earnings (P/E) of 22x.

Overall, AVGO stock holds a “Strong Buy” rating on the Street. Out of the 39 analysts in coverage, 34 rate it a “Strong Buy,” two say it is a “Moderate Buy,” and three recommend a “Hold.”

Based on the mean target price of $364.29, the stock has potential upside of 8.2% from current levels. Plus, its high price estimate of $415.56 indicates the stock could gain as much as 23.4% in the next 12 months.

Time to Buy, Hold, or Take Profits?

For investors, the decision comes down to time horizon. Those with a shorter-term horizon may find it beneficial to lock in profits after AVGO’s strong run. But long-term investors who recognize Broadcom’s unique positioning at the intersection of AI infrastructure and enterprise software may want to hold on to the stock, as it has a lot of room to compound. Given that AVGO is trading at a premium, risk-averse investors might want to accumulate shares between $300 and $310 to invest with a margin of safety.www.barchart.com

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com

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