Broadcom: Multiple Expansion Still On The Table After Today's Pop

Broadcom delivered a record quarter, surpassing guidance with its AI semiconductor revenue growing 63% year-over-year to $5.2 billion in Q3 and projecting 66% growth to $6.2 billion for Q4. The company also reported a record $110 billion backlog and an uplifted FY26 outlook, bolstered by new product offerings and large XPU customers. While the stock trades at a stretched 111x TTM P/E, the market generally forecasts around 20% annual growth through the decade, though a slow recovery in non-AI semiconductor segments remains a potential risk.

Analysis

Broadcom (AVGO) has demonstrated significant momentum, delivering a record quarter that surpassed guidance, primarily driven by its artificial intelligence semiconductor business. This segment's revenue surged 63% year-over-year to $5.2 billion in Q3, with robust forward guidance projecting a further 66% growth to $6.2 billion in Q4. This performance is supported by a substantial record backlog of $110 billion, providing strong revenue visibility. The company's future outlook for fiscal year 2026 is further bolstered by new product cycles, including the Jericho4 and Tomahawk 6, and the onboarding of four large XPU customers. However, this growth comes with a stretched valuation, as the stock trades at 111x trailing twelve-month P/E. While the market consensus anticipates approximately 20% annual growth through the end of the decade, which could rationalize the premium, investors face two key risks: a sluggish recovery in the non-AI semiconductor segments and the potential for a short-term price pullback following the strong earnings announcement.

Key Decisions for Investors

• Given the reported 63% year-over-year growth in AI semiconductor revenue and a record $110 billion backlog, long-term growth investors may find Broadcom's leadership in the AI space compelling.
• Investors must carefully assess if the high 111x TTM P/E multiple is justified by the consensus forecast of approximately 20% annual growth through the decade, as this valuation implies high expectations are already priced in.
• It is prudent to monitor the performance of the company's non-AI semiconductor segments, as a slow recovery in this area remains a primary risk, and also be prepared for potential short-term stock volatility following the recent earnings report.