Can Broadcom (AVGO) Outperform the Market Over the Next Decade?
As a general rule, it's wise not to put all your eggs in one basket. While a single stock might outperform the market for a few years, it could lose momentum. It's smarter to diversify your portfolio across a dozen or more stocks in different sectors, or simply invest in an S&P 500 index fund or exchange-traded fund (ETF).
But if I were forced to choose a single stock and hold it for the next decade, I'd likely pick Broadcom (AVGO). Let's examine how this diversified tech giant has expanded and evolved over the years, and why it could continue to beat the market.
A Brief History of the "New" Broadcom
Avago, a chipmaker based in Singapore, acquired the original Broadcom in 2016. Before that acquisition, Avago sold a wide range of wireless, storage, networking, optical, and radio frequency chips. Broadcom competed against Avago in the storage and networking markets, but it also sold mobile, multimedia, and wifi/Bluetooth combo chips.
By combining those businesses, Avago -- which subsequently rebranded itself as the "new" Broadcom -- became a dominant supplier of essential chips for the enterprise, industrial, and mobile markets. It's a fabless chipmaker that outsources its production to third-party foundries, and that capital-light strategy insulates it from delays and supply chain shortages. The company also moved its headquarters to the U.S. during the first Trump administration in 2018.
Broadcom then expanded its infrastructure software business by acquiring the enterprise software provider CA Technologies in 2018, Symantec's enterprise security business in 2019, and the cloud software giant VMware in 2023. That expansion reduced its dependence on Apple (its top chip customer) and the cyclical semiconductor market.
In fiscal 2024 (which ended last November), the company generated 58% of its revenue from its semiconductor solutions segment and the remaining 42% from its infrastructure software segment. This diversification provides a more balanced profile compared to other dedicated chipmakers.
A More Balanced AI Play Than Nvidia
From fiscal 2019 to fiscal 2024, Broadcom's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew at a CAGR of 19% and 28%, respectively, even as the pandemic, inflation, rising rates, tariffs, and geopolitical conflicts rattled the markets. That robust growth was driven by its strategic acquisitions (especially its $69 billion takeover of VMware), the 5G upgrade cycle in smartphones, and the explosive expansion of the AI market.
Broadcom sells a broad range of networking, optical, and custom accelerator chips to support AI applications. This makes it a more balanced infrastructure play on the booming AI market than Nvidia, which generates most of its revenue by selling powerful data center GPUs to process AI tasks. Broadcom's diverse product offerings allow it to cater to various AI applications, from edge computing to cloud-based solutions.
In fiscal 2024, Broadcom's sales of AI-oriented chips skyrocketed 220% to $12.2 billion and accounted for 24% of its top line. For fiscal 2025, it expects its AI chip sales to surge another 63% to $19.9 billion -- or roughly 31% of its projected annual revenue. The rapid growth of Broadcom's AI chip business is offsetting the slower growth of its non-AI chip and software businesses. It expects those softer segments to firm up again in the second half of 2026 as the cyclical wireless, server, and broadband markets stabilize.
Broadcom is Still Reasonably Valued
Broadcom's stock has already surged 820% over the past five years, but it still doesn't appear overvalued at 27 times next year's adjusted EBITDA. From fiscal 2024 to fiscal 2027, analysts expect its revenue and adjusted EBITDA to grow at a CAGR of 23% and 25%, respectively.
That growth should be fueled by the simultaneous expansion of the AI, networking, and infrastructure markets. These estimates might even be conservative if Broadcom continues to expand its chip and software segments through strategic acquisitions.
Therefore, if I could only buy a single stock, Broadcom ticks all the right boxes: rapid growth, a wide moat, a willingness to expand, and a reasonable valuation.
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