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

The Reddit post (2025-11-26) raised bearish arguments about Broadcom (AVGO): VMware price hikes driving customer churn and valuation lagging peers like NVIDIA/AMD [7]. However, analyst data countered these claims with strong AI growth metrics—AVGO’s AI revenue hit $5.2B in Q3 (63% YoY) and has a $110B backlog mostly from AI deals [6]. The Google Gemini3 model using Broadcom TPUs further validated its AI chip competitiveness, leading to a 35% 3-month price gain vs. NVIDIA’s flat performance [2][3][4].

Conflicting data emerged on VMware customer retention: Reddit users reported anecdotal churn, but AVGO’s Q3 earnings noted over 90% of top accounts adopted its VCF platform [6][7]. This suggests a potential gap in mid-tier/small business retention data that needs verification.

1. AI Segment Dominance
   : AVGO’s AI growth (63% YoY) is outpacing broader semiconductor trends, justifying its premium valuation relative to peers [6].
2. Valuation Trade-off
   : The 99x P/E ratio is high, but the $110B AI backlog and 93% software gross margin provide long-term visibility [1][6].
3. VMware Integration
   : Top accounts show strong adoption, but mid-tier churn risks remain unaddressed by official data [6][7].
4. Market Outperformance
   : AVGO’s 35% 3-month gain (vs. NVIDIA’s 0.11%) reflects investor confidence in AI catalysts overriding bearish concerns [3][4].

• High Valuation
  : A 99x P/E ratio depends on sustained AI growth; any slowdown could trigger corrections [1].
• Non-AI Weakness
  : Non-AI semiconductors are growing at low single digits YoY, exposing cyclical risks [6].
• Competition
  : NVIDIA’s GPU dominance and AMD’s expanding AI portfolio may erode market share [2][5].

• AI Backlog
  : $110B in AI deals provides predictable revenue streams [6].
• Google Partnership
  : The Gemini3 TPU deal opens new enterprise AI markets [2].
• Software Margin
  : 93% gross margin from VMware enhances profitability [6].

Users should note the conflicting data on VMware retention and high valuation risks when evaluating AVGO’s long-term prospects.