Is It Too Late To Consider Broadcom After AI Surge And VMware Acquisition?

• If you are wondering whether Broadcom is still a smart buy after its huge multi year run, or if you might be late to the party, this breakdown is for you.
• The stock has had a choppy stretch, falling 16.4% over the last week and slipping 0.8% over the past month, but it is still up 46.5% year to date and 770.5% over five years, which keeps it firmly on growth focused investors' radar.
• Much of this momentum has been driven by Broadcom's central role in AI infrastructure and high performance networking, with investors rewarding its positioning in custom accelerators and data center chips. The completed VMware acquisition has also reshaped the story, adding a large software recurring revenue base that many see as reducing risk in the business and supporting a higher long term earnings profile.
• Despite all of that enthusiasm, Broadcom only scores 1 out of 6 on our undervaluation checks. In this article we will walk through the main valuation methods investors are using today, and then finish by exploring a more powerful way to think about what the stock is really worth.

Broadcom scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Broadcom Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth today by projecting its future cash flows and then discounting those back to a present value. For Broadcom, Simply Wall St uses a 2 stage Free Cash Flow to Equity model based on cash flow projections.

Broadcom generated trailing twelve month free cash flow of about $26.9 billion, reflecting its profitability from chip and software operations. Analyst forecasts and extrapolations in this model indicate this could reach roughly $107.1 billion in free cash flow by 2030, with additional modeled growth in subsequent years as the AI and networking cycles develop.

When all of these projected cash flows are discounted back to today, the model arrives at an estimated intrinsic value of about $290.56 per share. Compared with the current market price, this implies the stock is roughly 16.9% overvalued within this framework.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Broadcom may be overvalued by 16.9%. Discover 903 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Broadcom.

Approach 2: Broadcom Price vs Earnings

For profitable, mature businesses like Broadcom, the price to earnings ratio is often the go to valuation tool because it links what investors pay today directly to the profits the company is already generating. A higher PE can be justified when a company is expected to grow earnings quickly with relatively low risk, while slower growth or higher uncertainty should lead to a lower, more conservative multiple.

Broadcom currently trades on a PE of about 69.4x, which is well above both the broader Semiconductor industry average of around 37.3x and the peer group average of about 54.2x. On the surface this suggests the market is pricing in stronger growth and quality than the typical chip stock. To refine this view, Simply Wall St uses a proprietary Fair Ratio, which estimates what a reasonable PE should be after accounting for Broadcom’s expected earnings growth, its margins, risk profile, industry dynamics and market cap. This tailored benchmark, at roughly 54.9x, is more informative than a simple peer or industry comparison because it aligns the multiple with Broadcom’s specific fundamentals. Set against the current 69.4x, it indicates investors are paying a meaningful premium to that fair level.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Broadcom Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simple stories you build around Broadcom that connect your view of its AI demand, VMware integration, future revenue, earnings and margins to a concrete forecast and a Fair Value estimate on Simply Wall St’s Community page. This helps you decide when to buy or sell by comparing that Fair Value to today’s price, with each Narrative automatically updating as new news or earnings are released. For example, one investor might use strong AI partnerships and a 30 percent plus growth outlook to justify a Fair Value above the current consensus of about $404 per share, while a more cautious investor, focused on customer concentration, competition and debt, could reasonably arrive at a much lower Fair Value closer to the most bearish analyst target of roughly $218.

Do you think there's more to the story for Broadcom? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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