Broadcom (AVGO) Valuation Analysis: Catalysts vs. Overvaluation Concerns

2025-11-26
23:25 UTC

---

A Reddit post (user-provided) argues Broadcom (AVGO) is overvalued at ~$1.8T market cap, citing two bearish and two bullish key points:

• Bearish:
  1. VMware price hikes are driving customers to alternatives like ProxMox, harming both high-end and future sales pipelines.
  2. Valuation is unjustified—growth lags peers (NVIDIA, AMD) with a higher PEG ratio than NVIDIA.
• Bullish:
  1. Long-term track record and institutional support justify current valuation.
  2. VMware acquisition reduces cyclical risk, and new AI deals (Meta-Google TPU partnership) are catalysts.

The post highlights AVGO’s 60% semiconductor/40% software revenue split and calls for 6x 2026 semiconductor revenue growth to justify valuation.

---

• AVGO Price:
  After-hours gain of 3.26% to $397.57 (market cap $1.87T) [0].
• Short-Term Performance:
  5-day +15.18%, 1-month +12.27%, YTD +71.38% [0].
• Sector Context:
  Technology sector up 0.15% on the day, with Energy leading (+1.77%) [0].

• AI Deals:
  Meta’s potential adoption of Google TPUs (supplied by Broadcom) is a key catalyst—Jim Cramer calls AVGO the “most likely winner” in this deal [8]. TrendForce reports this could boost AVGO’s AI revenue in 2026-2027 [7].
• Analyst Upgrades:
  Goldman Sachs raised AVGO’s price target to $435 (from $380) citing AI strength [3]. Forbes labels AVGO a “top AI bet” for investors [1].
• VMware Integration:
  The acquisition has created a 50/50 software/semiconductor revenue split, reducing cyclical risk [0] (earnings transcript).

---

Metric	AVGO [0]	NVDA [0]	AMD [0]
P/E Ratio	~100x	~44x	~105x
ROE	27.01%	1.04%	5.61%
Net Profit Margin	31.59%	53.01%	10.32%
Market Cap	$1.87T	$4.39T	$347.7B

• Q3 2025:
  AI semiconductor revenue $5.2B (+63% YoY) [0] (earnings transcript).
• Q4 2025 Forecast:
  AI revenue $6.2B (+66% YoY) [0].
• Backlog:
  $110B total, with >50% from semiconductors (mostly AI) [0].

• Price Increases:
  Up to 8-15x for some customers [5].
• Customer Reaction:
  SMBs and mid-market clients are fleeing; Broadcom canceled partner agreements [4], [6].
• Regulatory Scrutiny:
  European Cloud Competition Observatory (ECCO) reports Broadcom refuses to backtrack on hikes [6].

• Buy Ratings:
  91.2% of analysts rate AVGO Buy (52/57) [0].
• Price Target:
  Consensus $412 (+3.6% from current) [0].

---

1. VMware Churn Impact:
   Exact revenue loss from customer flight (e.g., how many SMBs have left, and their contribution to software revenue).
2. AI Backlog Details:
   How much of the $110B backlog comes from the Meta-Google TPU deal vs existing customers.
3. Non-AI Recovery:
   When non-AI semiconductors will recover (current forecast: u-shaped recovery by late 2026) [0].

• Valuation:
  AVGO’s ~100x P/E is justified by AI growth but is significantly higher than NVIDIA’s ~44x—investors should monitor AI revenue acceleration vs valuation.
• Institutional Support:
  91.2% Buy ratings suggest strong institutional confidence, but retail investors may be cautious of high P/E [0].

---

1. VMware Customer Churn:
   Aggressive price hikes (8-15x) are driving SMBs to alternatives like ProxMox [4], [5]. This could reduce long-term software revenue growth.
2. Valuation Premium:
   AVGO’s P/E (~100x) is 2x NVIDIA’s (~44x) [0]. If AI growth slows, the premium may compress.
3. Non-AI Slump:
   Non-AI semiconductors are slow to recover—this segment contributes ~40% of semiconductor revenue [0].

• AI Moat:
  Broadcom’s lead in custom AI chips (XPUs) and Ethernet networking gives it a competitive edge [0] (earnings transcript).
• Software Stability:
  VMware’s enterprise customer base (top 10k accounts) has 90% adoption of VCF, providing recurring revenue [0].

---

[0] Internal Tools: get_stock_realtime_quote, get_company_overview, get_earnings_transcript, get_sector_performance.
[1] Forbes: “Why Broadcom May Be One Of The Best AI Bets” (https://www.forbes.com/sites/greatspeculations/2025/11/26/why-broadcom-may-be-one-of-the-best-ai-bets/).
[2] Cloudtango: “VMware Price Increase: What You Need to Know” (https://www.cloudtango.net/blog/2025/11/03/vmware-price-increase-what-you-need-to-know/).
[3] CNBC: “Apple and Broadcom shares keep hitting records…” (https://www.cnbc.com/2025/11/26/apple-and-broadcom-shares-keep-hitting-records-why-each-have-more-room-to-run.html).
[4] GO-Global: “Broadcom Cancels VMware Partner Agreements” (https://www.graphon.com/blog/broadcom-cancels-vmware-partner-agreements).
[5] Intelisys: “Responding to Broadcom/VMware Licensing Changes” (https://intelisys.com/broadcom-vmware-licensing-changes/).
[6] NetworkWorld: “Broadcom refuses to backtrack on huge VMware price hikes…” (https://www.networkworld.com/article/4081344/broadcom-refuses-to-backtrack-on-huge-vmware-price-increases-claims-european-cloud-watchdog.html).
[7] TrendForce: “Meta Reportedly Weighs Google TPU Deployment in 2027…” (https://www.trendforce.com/news/2025/11/25/news-meta-reportedly-weighs-google-tpu-deployment-in-2027-boosting-broadcom-taiwans-guc/).
[8] Yahoo Finance: “Jim Cramer Says Broadcom Is The ‘Most Likely Winner’…” (https://finance.yahoo.com/news/jim-cramer-says-broadcom-most-033102047.html).

---

Disclaimer:

This report is for informational purposes only and does not constitute investment advice. All data is sourced from internal tools and public domains; investors should conduct their own due diligence.

Compliance Note:

Not investment advice—for decision-making context only.