Broadcom (AVGO) Stock: Should You Buy the Dip?

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TLDR

  • Truist increased its price target on Broadcom to $510 from $500 while keeping a Buy rating, citing robust growth prospects for AI infrastructure semiconductors.
  • The firm posted Q4 2025 revenue of $18 billion, a 28% year-over-year increase, as AI semiconductor revenue surged 74%.
  • Shares fell more than 11% following the earnings release amid worries about margin pressure and a decline in the AI backlog from $110 billion to $73 billion.
  • Leadership forecasts Q1 2026 revenue of $19.1 billion, with AI revenue set to double to $8.2 billion.
  • Fiscal 2025 adjusted EBITDA reached a record $43 billion, rising 35% year-over-year, while free cash flow totaled $26.9 billion.

Broadcom shares have experienced significant volatility recently, gaining 52% over the previous 12 months before dropping sharply by 11% following the December 11 earnings announcement.

AVGO Stock Card

The market response appears severe considering the results. Q4 2025 revenue reached $18 billion, surpassing analysts’ $17.5 billion forecast. Earnings per share of $1.95 exceeded the $1.87 consensus estimate.

The AI segment represents the key narrative, with AI semiconductor revenue soaring 74% year-over-year in Q4, representing substantial expansion.

However, several factors unsettled investors: the AI backlog contracted from $110 billion to $73 billion quarter-over-quarter, and management declined to issue full-year guidance for fiscal 2026.

Margin trends also sparked concern, with management projecting a 100 basis point decline in gross margins for Q1 as AI products comprise a larger portion of revenue.

Truist appears unconcerned, having raised its price target to $510 on December 19 from $500, viewing AI infrastructure semiconductor stocks as inexpensive relative to their growth trajectories.

Revenue Growth Accelerating Into 2026

Broadcom’s Q1 2026 forecast presents a more optimistic outlook than the post-earnings decline indicates. The company anticipates revenue of $19.1 billion, comfortably ahead of the $18.5 billion analyst consensus, reflecting 28% year-over-year growth.

AI revenue is projected to double in Q1 to $8.2 billion. For perspective, overall AI revenue increased 65% to $20 billion in fiscal 2025.

The full-year outlook becomes compelling upon further analysis. The company’s $73 billion AI backlog is expected to be delivered across six quarters, translating to approximately $12 billion in quarterly AI revenue.

Across four quarters, this could yield $48 billion in AI revenue for fiscal 2026, compared to $20 billion last year—representing more than a twofold increase.

The non-AI segment expanded 11% last year to $43.9 billion. Maintaining that rate could drive total revenue to $97 billion in fiscal 2026, marking 51% growth versus 23% in the prior year.

Analyst Sentiment Remains Strong

New Street likewise lifted its price target recently to $420 from $400 while retaining a Buy rating. A company insider purchased $325,129 in shares, per SEC filings.

Analyst sentiment remains predominantly positive, with 92% of the 50 covering analysts assigning a Buy rating. The median price target stands at $475, suggesting 39% upside from current levels.

The valuation appears elevated at 26 times sales and 71 times trailing earnings, though the growth trajectory justifies these multiples.

Broadcom delivered adjusted EBITDA of $43 billion for fiscal 2025, a 35% year-over-year increase. Free cash flow stayed robust at $26.9 billion. The company projects adjusted EBITDA will represent 67% of revenue in Q1 2026.

The total consolidated backlog reached $162 billion last quarter, exceeding the AI-specific backlog by more than twofold. Broadcom also markets infrastructure software, networking components, and smartphone chips beyond AI semiconductors. AI represented roughly one-third of last year’s $63 billion in revenue.

Management anticipates AI revenue will double in Q1 2026 to $8.2 billion, positioning the company for potential AI revenue of $48 billion across the next four quarters based on the existing backlog delivery schedule.