Cramer says Broadcom stock is only ‘getting cheaper' over time: explained here

Despite a 140% year-to-date surge, Broadcom (AVGO) stock is considered 'getting cheaper' by Jim Cramer and other analysts, driven by rapidly increasing earnings expectations (e.g., 2026 EPS estimates rising to $9.71 from $8.48) that are outpacing its share price growth, thereby compressing its forward P/E multiple from 37x to 36x. This bullish sentiment is reinforced by a strong recent quarter, a new $10 billion long-term customer, its pivotal role in AI infrastructure benefiting from trends like Oracle's ambitious AI forecasts, and a consensus 'buy' rating with potential for further upside and a $10 billion share repurchase program for 2025.

Analysis

Despite a significant 140% rally since early April, Broadcom's (AVGO) valuation is paradoxically becoming more attractive to some investors due to earnings expectations rising faster than its stock price. This phenomenon, described as the stock 'getting cheaper,' is quantified by its forward P/E multiple for 2026 compressing to approximately 36x from 37x as EPS estimates have surged to $9.71. This re-rating is underpinned by strong operational momentum, including a solid recent quarter, impressive forward guidance, and the acquisition of a new $10 billion long-term customer. The bullish sentiment is further amplified by secular tailwinds in the artificial intelligence sector, with Oracle's ambitious AI revenue forecast serving as a positive indicator for infrastructure demand, directly benefiting Broadcom's position in custom AI chips and inference. The case is reinforced by a Wall Street consensus 'buy' rating with price targets implying up to 18% further upside, and a robust capital return policy featuring a $10 billion share repurchase program for 2025 and a 0.66% dividend yield.

Key Decisions for Investors

• Investors should assess Broadcom's valuation on a forward-looking basis, as the core bull thesis rests on earnings growth outpacing share price appreciation, leading to a compression in the forward P/E multiple.
• Monitor AI infrastructure spending and guidance from major enterprise clients like Oracle, as these serve as key leading indicators for Broadcom's growth trajectory and the sustainability of its current momentum.
• Factor the company's commitment to shareholder returns, specifically the $10 billion stock repurchase program for 2025 and the existing dividend, into total return calculations as they provide a source of value and potential downside support.