AVGO stock surges 13% in a month due to strong demand for AI accelerators

Broadcom’s AVGO shares have surged 12.7% in a month, beating the industry and sector growth rates. Strong demand for custom AI accelerators (XPUs) is driving top-line growth, with double-digit revenue growth in the second quarter. Notable users include Alphabet and Meta Platforms. AVGO’s innovative portfolio and networking products are key growth drivers.

However, AVGO’s third-quarter fiscal 2025 guidance reflects slowdowns in server storage, wireless, and industrial businesses. The company expects modest sequential revenue growth with a decline in gross margin due to a higher mix of lower-margin XPUs. The Zacks Consensus Estimate for fiscal third-quarter earnings stands at $1.66 per share, showing significant year-over-year growth.

Broadcom’s balance sheet strength, highlighted by $9.47 billion in cash and cash equivalents, supports shareholder-friendly initiatives like dividends and buybacks. Strong liquidity and free cash flow generation are key factors in AVGO’s ability to return cash to shareholders. The company recently paid off $1.6 billion in debt and repurchased approximately 25 million shares of common stock.

AVGO stock is trading at a premium, with a Value Score of D and a forward 12-month Price/Sales ratio of 18.13X. This is higher than the sector average and peers like Rambus and Marvell Technology. While Broadcom’s expanding AI portfolio and rich partner base signal strong growth potential, the declining gross margin and macroeconomic challenges may not justify the premium valuation. Investors are advised to wait for a more favorable point to accumulate the stock.

Read more at Nasdaq: Broadcom Rises 13% in a Month: Buy, Sell or Hold the AVGO Stock?