Broadcom (AVGO) Remains a Great Way to Invest in AI Infrastructure

Broadcom (AVGO) is still one of the best ways to invest in artificial intelligence (AI) infrastructure. The semiconductor giant has real staying power in this cycle, thanks to the systems that connect, scale, and optimize the huge compute demands of generative AI. Broadcom sits at the center of that buildout via its dominance in networking and its deeper integration with hyperscalers developing custom AI silicon. That forms a rare mix of secular growth, strategic importance, and resilience across product cycles. With the stock off its highs, I remain bullish on AVGO.

The Sovereign of the Hyperscale Tax

Broadcom is a safer bet than some on the bearish side realize. A good example of that is what I call the “Hyperscale Tax.” Every time a cloud titan like Meta (META) or Alphabet (GOOGL) builds a massive AI cluster, it has to pay a toll to Broadcom, regardless of whose silicon actually does the “thinking.” Broadcom’s latest $22 billion Q2 guidance was a signal that the networking bottleneck is the new frontier of profitability.

Within that guide, AI-related revenue is projected to reach $10.7 billion, representing a staggering 140% year-over-year jump. It also shows that as clusters grow from 100,000 to 1,000,000 XPUs (AI accelerators), the complexity of connecting them increases even faster.

This dominance should be bolstered by the recent launch of the Tomahawk 6, a piece of engineering that effectively renders the competition’s networking dreams obsolete for the current cycle. With a 102.4 Terabits per second (Tbps) switching capacity, the Tomahawk 6 is the world’s first “AI-native” switch designed to handle the “low-entropy” traffic flows unique to large-scale training.

In turn, this enables simultaneous scale-up and scale-out, supporting both traditional Ethernet and the new Ultra Ethernet Consortium standards. While graphics processing unit (GPU) makers face the “cliff” of architectural transitions, Broadcom’s networking backbone is the glue that makes the whole machine work, making its revenue streams far stickier and less prone to the “hero-to-zero” cycles of individual chip designs.

Beyond the Silicon: The Custom ASIC Moat

Beyond the raw silicon, Broadcom’s real advantage lies in its custom Application-Specific Integrated Circuit (ASIC) relationships with hyperscalers: deeply embedded partnerships that turn specialized chips into a durable, high‑margin moat. This lead is further reinforced by Broadcom’s growing role as a co‑architect of the world’s most powerful custom AI accelerators. The company has secured partnerships with six major hyperscale customers, such as recent wins with OpenAI and Anthropic. In addition, it has pivoted from being a component supplier to a strategic partner.

I believe the market underestimates this direction. This is because when Broadcom builds a custom tensor processing unit (TPU) for Google or a Meta Training and Inference Accelerator (MTIA) chip for Meta, it’s embedding its own proprietary intellectual property into the very DNA of the world’s most valuable software companies. This is the “safe” way to play AI infrastructure because Broadcom is enabling them to build their own alternatives to expensive off-the-shelf GPUs.

This unique positioning is what makes the “Hyperscale Tax” so potent. As these tech giants move toward vertical integration to cut costs, they are ironically giving Broadcom greater leverage. Broadcom’s ability to offer a full rack system that integrates custom compute, Tomahawk switching, and world-class optics creates an ecosystem in which competitors’ entry costs are prohibitively high. So Broadcom is effectively selling the picks, shovels, and maps to the gold mine while also owning the road that leads there.

A Secular Shift in the Valuation Narrative

AVGO is currently trading roughly 20% below its 52-week high, dragged down by a general tech sell-off that seems to have forgotten the company’s underlying fundamentals. At a glance, the stock might still appear rich. After all, it’s still up nearly 100% over the last 12 months and currently trades at roughly 28x this year’s expected earnings per share (EPS). For a semiconductor stock, which the market historically treats as a cyclical beast, that multiple might feel like a stretch.

However, I think it’s fair to say that the traditional “cyclical” label for Broadcom is increasingly obsolete. The company is undergoing a secular transition in which AI infrastructure spending has evolved into mandatory capex for survival. When you look at the growth trajectory, the “expensive” tag starts to melt away, too. The EPS figure represents roughly a 40–50% increase over last year, and the consensus for FY2027 already points to around $9, a further mid‑teens percentage jump that still implies a forward P/E at today’s price levels.

When you factor in that Broadcom is likely to continue its aggressive buyback program and maintain its status as a Dividend Aristocrat in the making, paying a mid‑single‑digit growth‑adjusted multiple for such strong earnings growth in what may be the most critical sector of the global economy, it makes the stock look attractive, even if not quite a bargain.

The market is pricing AVGO like a hardware company that might have a bad year in 2027, but the reality is that the “Hyperscale Tax” doesn’t have an off switch, at least in the short- to medium-term. As long as the world demands more intelligence, Broadcom will be there to collect.

Is AVGO Stock a Buy, Sell, or Hold?

Despite the stock still having more than doubled over the past year, Broadcom still boasts a Strong Buy consensus rating on Wall Street. This is based on 27 Buy ratings and four Hold ratings. Interestingly, no analyst rates the stock a Sell. In addition, AVGO’s average price target of $464.32 implies roughly 39% upside potential over the next 12 months.

The Bottom Line

To sum up, I believe the dip in Broadcom could present an opportunity despite the stock’s extended rally over the past year. By owning the networking backbone and the custom silicon pipeline, AVGO has decoupled itself from the volatility of the GPU wars. At today’s compressed valuation levels, you’re buying a permanent stake in the AI future. Consequently, I remain bullish on AVGO.