Exceeding expectations for its fiscal third quarter on Thursday evening, Broadcom AVGO stock has surged as much as +16% in today’s trading session to a new 52-week high of $356 a share.
Starting to be seen as a very credible challenger to other dominant AI chip leaders, Broadcom’s Q3 report caused a slight selloff in Nvidia NVDA and AMD’s AMD stock.
Outperforming the broader indexes and these AI chip peers, Broadcom stock is now up more than +40% in 2025, and investors may be wondering if they should buy into the post-earnings spike in AVGO.
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Broadcom’s Strong Q3 Results
Riding high on the AI wave, Broadcom reported record Q3 sales of $15.95 billion, which increased 22% from $13.07 billion in the comparative quarter and topped estimates of $15.82 billion. This was driven by AI semiconductor revenue, which climbed 63% year over year to $5.2 billion. Notably, VMware contributed $6.8 billion, with Broadcom’s acquisition of the virtualization software company continuing to pay off.
On the bottom line, Broadcom’s Q3 earnings increased 36% to $1.69 per share from EPS of $1.24 a year ago and topped expectations of $1.66. Additionally, Broadcom highlighted that its Q3 adjusted EBITDA spiked 30% to $10.7 billion, with free cash flow soaring 47% to $7 billion.
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Broadcom’s XPU Chips
Leading Broadcom’s advancement in AI has been its custom XPU chips that are designed to meet the specific needs of consumer AI companies and go beyond traditional CPUs and GPUs to handle high-performance computing (HPC) workloads with extreme efficiency.
Furthermore, Broadcom’s XPU chips are application-specific integrated circuits (ASICs), tailored to the unique needs of each client’s AI infrastructure. Adding fuel to the post-earnings rally in Broadcom stock, the company stated it secured $10 billion in XPU orders from a new customer, which is thought to have been ChatGPT creator OpenAI. This AI hyperscale client has extended Broadcom’s reach outside of major players like Meta Platforms META and Alphabet GOOGL.
Broadcom’s Optimistic Q4 Guidance
Raising its fourth quarter revenue guidance due to robust demand for custom AI accelerators, Broadcom now expects Q4 sales to increase 24% to $17.4 billion, coming in above the current Zacks Consensus of $16.96 billion (Current Qtr below). More intriguing, Broadcom forecasts Q4 AI revenue to grow to $6.2 billion, which would mark 11 consecutive quarters of growth.
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AVGO Valuation Comparison
Following today’s rally, Broadcom stock has started to trade at a noticeable premium to the broader market at 46.1X forward earnings. However, this is not a far stretch to Nvidia and AMD at 39.7X and 41.1X forward earnings, respectively. Like many high-growth tech stocks, Broadcom does trade at a very high price to forward sales valuation of 24X, which is roughly on par with Nvidia but noticeably above AMD’s 8.8X.
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Bottom Line
While it’s certainly tempting to buy into the post-earnings rally in Broadcom stock, AVGO lands a Zacks Rank #3 (Hold). More meaningful upside after such a sharp YTD rally may largely depend on what is hopefully a positive trend of earnings estimate revisions (EPS) in the coming weeks, but it wouldn’t be surprising if this were to occur, given Broadcom’s bullish tone for its XPU chips.
#1 Semiconductor Stock to Buy (Not NVDA)
The incredible demand for data is fueling the market’s next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.
One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don’t build. It’s just beginning to enter the spotlight, which is exactly where you want to be.
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This article originally published on Zacks Investment Research (zacks.com).
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