AVGO Stock: What's driving its price, and how it compares to NVDA & AMD

Generated Title: Broadcom's AI Hype: The $450 Billion Question Mark

Broadcom (AVGO) has been riding the AI wave, and the market's been eating it up. The stock's up 14% in a quarter, and a staggering 747% over the last five years. No one can deny that. But let's pump the brakes for a minute and look at what's actually fueling this rocket ship. Is it solid rocket fuel, or just hot air?

The latest buzz centers around projected hyperscaler CapEx. CreditSights (part of Fitch) estimates a 36% surge to $602 billion by 2026, driven by "unprecedented AI infrastructure investments." The claim is that 75% of this, or $450 billion, will be AI-specific. That's a juicy number, and the implication is clear: Broadcom, with its custom accelerators and networking chips, stands to profit massively.

But here's where my skepticism kicks in. Seventy-five percent? That figure feels… arbitrary. Evelyn Advisors projects total hyperscaler CapEx at $365 billion in 2025, with a similar 75% AI allocation, resulting in $274 billion. The jump from $274 billion to $450 billion in a single year represents a 64% growth rate in AI CapEx. That's not just growth; that's an explosion. Can that really be sustained?

Questioning the AI-Driven Narrative

It's tempting to get swept up in the AI narrative. Broadcom's CEO, Hock Tan, has been relatively tight-lipped about updating the company's AI Serviceable Addressable Market (SAM) estimate, currently between $60 billion and $90 billion. He’s waiting for better visibility, hinting that a potential update might come in 2026. If history repeats itself, a significant increase to the AI SAM could send the stock soaring – shares jumped over 24% after the current AI SAM was announced. But I have to wonder, is the OpenAI deal enough to justify a massive SAM revision?

Broadcom's outperformance compared to the iShares Semiconductor ETF (SOXX) and NVIDIA (NVDA) is also noteworthy. Since October 29th, AVGO has dropped 10%, while SOXX and NVDA have declined by about 13%. This relative strength suggests Broadcom has some resilience. But outperforming a falling knife is still, well, a falling knife.

Broadcom's Q3 FY2025 results are impressive: Revenue up 22% YoY to $15.95 billion, AI revenue up 63% YoY to $5.2 billion, and free cash flow up ~47% YoY to $7.0 billion. Plus, a newly announced $10 billion share repurchase authorization. The financials paint a picture of a company firing on all cylinders. But even with these figures, the P/E ratio hovers around 96, which indicates stretched expectations.

The VMware Wildcard

The VMware acquisition is a whole other layer of complexity. Broadcom's software business is expanding, providing recurring revenue and improving margin mix. Infrastructure-software revenue is growing strongly, adding stability to the cyclical hardware business. However, there are legal clouds on the horizon. Fidelity sued Broadcom, alleging threats to cut off access to legacy VMware software. European cloud providers have also appealed the VMware buyout, citing unfair licensing practices.

The key question isn't whether Broadcom is participating in the AI boom (it clearly is), but whether revenue growth and margins can accelerate enough to justify the current price. Analysts are targeting US$420–US$480 for AVGO, assuming continued AI backlog growth. TradingNews projects fiscal 2026 AI revenues could hit US$30–32 billion. That’s a steep ramp from the current levels. Can they deliver?

A Bridge Too Far?

The market has priced in a lot of future growth. If Broadcom stumbles even slightly, the correction could be swift and brutal. The AI narrative is powerful, but narratives can change quickly. Investors need to decide if they're willing to bet $450 billion that Broadcom can meet these lofty expectations. I, for one, am not entirely convinced.

This Hype Train Needs a Reality Check

Broadcom is a solid company, but the current valuation hinges on an almost utopian vision of AI-driven growth. The data is compelling, but the assumptions are…aggressive. A healthy dose of skepticism is warranted. Broadcom’s Best Catalyst Yet Might Be Hiding in 2026 Forecasts