Quick Read
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AVGO shares fell 13% over the past year even as revenue surged 86% year over year, widening the gap between stock price and business performance.
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AMD trades at 129 times earnings, pays no dividend, and posts a 17.2% operating margin versus Broadcom’s guided Q4 margin of 66%.
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My position in Broadcom (NASDAQ:AVGO) grew last week, and I expect to add more after its next earnings report. The stock closed at $326.08 on October 30. That’s down 12.74% over the past year, even though the business grew revenue 85.5% year over year last quarter. That gap between the stock and the business is why I’m still accumulating shares.
Supply Limits Are Why I Keep Buying
Customers want more custom AI silicon than Broadcom can physically build, and the market treats that shortfall as weakness. On the September 2 earnings call, CEO Hock Tan gave an AI semiconductor outlook of about $115 billion for fiscal 2027 and $230 billion for fiscal 2028. Then he added: “Our demand actually exceeds this outlook, and we will work to improve supply.”
He named the choke points: “leading-edge silicon availability, substrates, and HBM memory,” along with land, power and data center shells. Broadcom plans to start making substrates at its Singapore fab in fiscal 2027. It also expects capital spending to rise to $1.4 billion in Q4, up from $532 million in Q3. What I see is a company building its way out of constraints while customers wait in line.
Three Numbers Behind My Conviction
First, growth keeps speeding up. AI semiconductor revenue hit $16.70 billion in Q3, up 221% year over year. Management guides Q4 to about $21.7 billion, up 236%.
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Second, the cash pays for the income I care about. Free cash flow reached $13.665 billion, or 46% of revenue. During the quarter, Broadcom paid $3.1 billion in dividends and reduced $5.6 billion of outstanding debt. The quarterly dividend stands at $0.65 after the company’s fifteenth consecutive annual increase, which works out to about a 0.8% yield at today’s price.
