Ahead of Earnings, Is Broadcom Stock a Buy, a Sell, or Fairly Valued?

Broadcom is set to release its fiscal fourth-quarter 2025 earnings report on Dec. 11. Here’s Morningstar’s take on what to look for in Broadcom’s earnings and the outlook for its stock.

Key Morningstar Metrics for Broadcom

• Fair Value Estimate: $365.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

Broadcom Earnings Release Date

• Thursday, Dec. 11, after the close of trading

What to Watch for in Broadcom’s Q4 Earnings

• Broadcom stock looks fairly valued heading into the report. Our fair value estimate is heavily driven by our growth expectations for the firm’s AI chip business over the next five years.
• Shares are increasingly trading based on the AI chip business, primarily its custom chips, or XPUs, for AI training and inference at large customers like Google. Shares have responded positively to a deal with OpenAI to develop a custom chip, and continued strong shipments to existing customers like Google and Meta.
• Google’s latest TPU, designed in partnership with Broadcom, has gotten lots of buzz over the past few weeks. Google trained its Gemini 3 model—regarded as the current market leader—entirely on TPUs, and the company is reportedly working on a deal to rent TPU capacity and sell TPU chips to Meta. We see this as highly constructive for Broadcom. Strong success for the TPU will drive greater shipments, and could lead to more customers pursuing custom chip deals with Broadcom.
• We expect at least some partial guidance for fiscal 2026 results. Any full-year AI guidance would be constructive. We expect a doubling of AI revenue to $40 billion in fiscal 2026.

Fair Value Estimate for Broadcom

With its 3-star rating, we believe Broadcom’s stock is fairly valued compared with our long-term fair value estimate of $365 per share, which implies a fiscal 2025 (ending October 2025) adjusted price/earnings multiple of 54 times and a fiscal 2026 multiple of 39 times, as well as a fiscal 2025 enterprise value/sales multiple of 27 times.

Read more about Broadcom’s fair value estimate.

Economic Moat Rating

We believe Broadcom holds a wide economic moat, stemming from intangible assets in chip design and switching costs for its software products. Strength in both chips and software allows the company to earn terrific accounting and economic profits, and we believe its competitive positioning will allow it to do so for the next 20 years. While we see most of Broadcom’s businesses as moaty in isolation, we believe its ability to aggregate disparate businesses via acquisitions and run them with terrific efficiency reinforces its wide moat, evidenced in impressive operating and economic profit margins.

Read more about Broadcom’s economic moat.

Financial Strength

We anticipate Broadcom will focus on strong cash generation. Over the short term, we expect the firm to focus on paying down debt taken out to acquire VMware. Over the long term, we expect the focus to be on increasing the dividend and bolting on more acquisitions by which to add to cash flow.

As of October 2024, Broadcom held $9 billion in cash and equivalents versus $68 billion in gross debt, with approximately half of that taken on to finance the 2023 acquisition of VMware. We don’t worry about its debt load, given the long-dated nature of its outstanding notes and its robust cash generation. After the gross debt/adjusted EBITDA ratio rose to 3.5 times after closing on VMware, the firm exited fiscal 2024 with that figure down to 2.1 times. Broadcom consistently generates free cash flow margins above 40%, which we expect to continue. Over the last five years, it’s averaged $14 billion in cash flow annually. With VMware in tow in fiscal 2025, we project $30 billion in free cash flow, rising past $50 billion annually in five years.

Read more about Broadcom’s financial strength.

Risk and Uncertainty

We assign a High Uncertainty Rating to Broadcom. As a chipmaker, the firm is vulnerable to market supply and demand cycles. Though it has been able to offset cyclicality in recent years with its software exposure and networking strength as a buoy, future cycles may not look similar. It also operates with a high reliance on Taiwan Semiconductor Manufacturing for its chip supply, and supply constraints could hamper its ability to ship to customers. Nonetheless, we believe Broadcom is a preferred customer of Taiwan Semiconductor and would earn high priority in such a scenario, both for its scale and their lengthy relationship.

Read more about Broadcom’s risk and uncertainty.

AVGO Bulls Say

• Broadcom is an exemplar of operating efficiency. It earns excellent operating margins and generates enormous cash flow. It is particularly strong at acquiring companies and trimming excess expenses.
• Broadcom’s networking and wireless chip businesses boast best-of-breed technologies, in our view, along with marquee customer relationships with Apple, Google, Cisco, Arista, and others.
• We believe Broadcom will be a significant beneficiary of rising AI spending, which we expect to spur significant growth for its networking semiconductor sales.

AVGO Bears Say

• Broadcom’s chip business is prone to cyclicality and customer concentration, with a small handful of wireless and AI customers becoming a rising portion of revenue.
• Broadcom’s software portfolio holds legacy and mature businesses, like virtualization and mainframes, which we think will exhibit moderating growth.
• Broadcom relies heavily on acquisitions to expand its portfolio and may struggle to find deals large enough to move the needle that can pass antitrust scrutiny.

This article was compiled by Frank Lee.