In the spectrum of investor confidence, "generational buying opportunity" is a term that goes beyond a casual buy, transcends "no-brainer," and even exceeds "high conviction." It's a term I've rarely used in my financial writing, because it's reserved for a company that can anchor a stock portfolio by compounding wealth for decades. Investment opportunities of that caliber don't come around often.
There are a lot of beaten-down tech stocks that are buys in today's market, but Broadcom (AVGO +0.17%) is in a league of its own. Here's why.
Image source: Getty Images.
The latest news
On April 7, Broadcom soared 6.2% despite a mere 0.1% rise in the Nasdaq Composite. The move higher came in response to artificial intelligence (AI) chip deals with Anthropic, the maker of Claude large language models, and with Alphabet-owned Google.
Google Cloud Services is providing multiple gigawatts of Tensor Processing Unit (TPU) capacity to Anthropic to help scale its models, agents, and enterprise applications. Broadcom designs Google-built TPUs, and it's one of the best examples of Broadcom's unique approach to AI.
NASDAQ: AVGO
Key Data Points
Custom solutions for AI data centers
Broadcom has been critical of AI data centers that rely too heavily on general-purpose graphics processing units (GPUs), believing that its custom AI accelerator (XPU) solutions will eventually overtake GPU designs.
The company has a long-standing partnership with Google -- supplying the hyperscaler with application-specific integrated circuits (ASICs) engineered to handle AI workloads for Google Cloud. The latest TPU generations, like Trillium and Ironwood, are optimized for high-volume inference workflows that apply what an AI has been taught. For example, Anthropic's Claude Code is an AI agent that primarily uses inference from Claude LLMs to help users develop software. Running AI agents requires significant compute, which is a boon for Broadcom's custom chip business.
Broadcom's latest deal with Anthropic and Google is a stamp of approval that its chips are helping hyperscalers unlock efficiency improvements and cost advantages for AI workloads. The deal reinforces Broadcom's bold goal of reaching a staggering $100 billion in AI chip sales in fiscal 2027. That's incredible, considering AI made up a tiny fraction of Broadcom's business just a few years ago.
In addition to designing custom AI chips, Broadcom has a booming AI networking business fueled by its Tomahawk series (high-bandwidth switching within AI data centers) and Jericho series (AI routing to connect AI clusters across data centers). In fact, Broadcom now expects AI networking to account for 40% of its upcoming second-quarter fiscal 2026 AI revenue.
A balanced tech giant
Broadcom's explosive AI growth is reason alone to buy the stock, but what makes Broadcom a truly generational buying opportunity is how AI fits into the overarching investment thesis.
The company is applying its expertise in semiconductors and networking to power AI data centers. But a significant part of its business isn't dependent on AI -- such as infrastructure software and general-purpose semiconductor solutions. Broadcom provides non-AI connectivity and storage for wireless, broadband, industrial automation, and networking, as well as non-AI infrastructure software for cybersecurity and enterprise software, especially through the VMware private and hybrid cloud platform.
AI revenue made up 43.5% of total revenue in Broadcom's latest quarter, which ended Feb. 1 -- which puts into perspective the sheer size of its non-AI business. Given Broadcom's growth prospects, AI revenue will likely become the majority of the business in a matter of quarters, but Broadcom is far from being a pure-play AI chip company. Its non-AI business is high-margin and generates substantial free cash flow, supporting consistent share buybacks and dividend increases.
Broadcom shares yield just 0.8% -- but that's only because the stock has performed so well. Consider that over the past six years, Broadcom's dividend has doubled, but the stock is up a staggering 996% -- so the dividend yield has compressed.
A foundational stock to build a portfolio around
Broadcom checks all the boxes of a generational buying opportunity. The company has explosive growth potential in AI custom chips and networking, but is also well equipped to endure a cyclical slowdown in AI thanks to its diversified business. Buybacks help keep Broadcom's valuation in check, and 15 consecutive years of dividend increases is music to the ears of passive income investors.
Even after its recent rally, Broadcom's stock is still down nearly 20% from its all-time high and trades at about 29 times forward earnings -- making it a reasonable value for long-term investors. Add it all up, and Broadcom might just be the best all-around stock to buy now.
