The "Magnificent Seven" gets a lot of attention -- and rightfully so -- as its components, Microsoft, Nvidia, Apple, Alphabet, Amazon, Meta Platforms, and Tesla, have all produced massive gains in recent years and life-changing gains over the long term.
But if there were a Magnificent Eight, Broadcom (AVGO +4.69%) would be the most deserving addition.
The semiconductor giant sports a market cap of $1.2 trillion and has produced a mind-numbing 373% gain in just the last three years and is up 772% in the last five years. If there were a Magnificent Eight, Broadcom would be the second-best performer during the last three to five years -- behind only Nvidia.
Here's why Broadcom has what it takes to continue soaring in the second half of 2025 and beyond.
Image source: Getty Images.
Blending the old with the new
Broadcom's value has compounded so much in recent years because the company is an industry leader in global connectivity and benefits from growth in artificial intelligence (AI).
Broadcom operates in several end markets, including cloud infrastructure, networking, cybersecurity, storage, broadband, wireless, and even solutions for hyperscale data centers. Its acquisition of VMware in late 2023 boosted Broadcom's exposure to infrastructure software.
Broadcom's core business (including VMware) is a stable, consistent cash cow. But what's really driving investor excitement is likely Broadcom's AI business.
NASDAQ: AVGO
Key Data Points
Unstoppable AI growth
In Broadcom's most recent quarter, which was second-quarter fiscal 2025, consolidated revenue grew 20% year over year, but AI semiconductor revenue jumped 46% to $4.4 billion -- representing 29% of total revenue. For context, Broadcom's AI revenue made up 25% of total revenue a year ago. So, the overall business is growing at an excellent pace, but AI is growing even faster.
One of Broadcom's key AI products is its application-specific integrated circuits (ASICs). ASICS are AI chips for data centers that can be lower-cost alternatives to graphics processing units (GPUs) because they can perform a specific function really well. In contrast, GPUs are basically catch-all workhorses for AI workflows.
Broadcom's XPUs are custom ASIC chips designed for AI workloads. On its March earnings call, Broadcom said that it believes the serviceable addressable market for these chips will grow to $90 billion by fiscal 2027 as hyperscale customers go from clusters of 500,000 accelerators to 1 million accelerators. These larger clusters could potentially boost efficiency and performance, which would be a net benefit for cloud service providers.
Fast-forward three months on its latest earnings call, and Broadcom said that it continues to expect a great deal of AI accelerator clusters to use its XPUs. It also expects AI semiconductor revenue in the current quarter to skyrocket to $5.1 billion, a 60% increase compared to third-quarter fiscal 2024.
Another element of Broadcom's AI revenue is AI networking, led by Ethernet, which represented 40% of AI revenue in the recent quarter. Broadcom offers a comprehensive portfolio of AI networking tools such as routers, switches, and controllers. These tools can work hand-in-hand with servers, GPUs, and AI accelerators (like XPUs) to drive AI training and deployment.
All told, Broadcom is well positioned to capture AI investment through its networking tools and its XPU chips. Meanwhile, the core business continues to deliver exceptional results.
A coiled spring for a prolonged AI boom
Broadcom is an excellent stock to buy and hold for investors who believe in sustained AI spending. Despite tariff pressure and geopolitical uncertainty, the vast majority of big tech companies and hyperscalers (many of which are Broadcom customers) didn't change their capital expenditure forecasts when they reported earnings in April and early May. And if anything, some companies even raised their capex forecasts -- a sign that AI spending wasn't phased by trade tensions.
It's also worth mentioning that many of these big tech companies have exceptional balance sheets, allowing them to invest throughout the business cycle and limit boom and bust periods of spending.
Broadcom is an impeccable business with growth opportunities across various end markets, including AI. But the stock is far from cheap -- sporting a forward price-to-earnings ratio of 38.7 -- which is even higher than Nvidia at 33.9. However, Broadcom is less of a pure-play company than Nvidia, which makes the vast majority of its earnings from GPUs for data centers. Broadcom also has a stable and growing dividend -- which it has raised for 15 consecutive years.
Even near an all-time high, Broadcom is worth a closer look for investors looking for a balanced tech company that benefits from AI but isn't solely dependent on AI to drive earnings growth.
Although Broadcom could continue soaring in the second half of this year, it must continue delivering exceptional earnings growth to justify its expensive valuation. So, the best way to approach the stock is with at least a three- to five-year investment time horizon rather than hoping for quarterly outperformance.
