'This Is Absurd,' Says Investor About Broadcom Stock

Broadcom (NASDAQ:AVGO) stock has been steadily losing ground, with shares down about 12% over the past seven trading sessions and 21% below their early-June peak. The slide began after Broadcom's fiscal second-quarter report failed to satisfy extremely high expectations. Investors were disappointed by softer-than-hoped AI guidance, weakness within Infrastructure Software, and management leaving its $100 billion 2027 AI revenue target unchanged. Concerns surrounding Broadcom's custom-chip relationship with Google later added another source of uncertainty.

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One investor, known by the pseudonym Nova Capital, considers Broadcom's current valuation absurd given the growth he expects over the coming years. He believes the market has punished the stock far too severely for relatively modest disappointments in June, while giving little credit to continued revenue expansion and record profitability.

"Overall, the earnings update for fiscal Q2 wasn't as bad as the market perceived it, in my view," Nova opined.

Nova's optimism extends well beyond what happened during a single quarter. Broadcom is moving from developing custom AI silicon toward supplying those products at greater scale, with several hyperscalers planning substantial computing deployments over the coming years. The investor views the chipmaker's specialized expertise as an important competitive advantage that could make replacing its technology particularly difficult for large customers.

"Broadcom appears to be the only go-to partner in this space, as switching away from them is extremely difficult given their specialized expertise in the niche," Nova said.

Networking represents another reason Nova believes current expectations could prove too conservative. AI clusters require faster connections among thousands of accelerators, while Ethernet has become a growing alternative to Nvidia's proprietary InfiniBand technology for these systems. Broadcom commands about 80% of the high-end switching market, while its Tomahawk 6 platform provides exposure to further data-center expansion.

"I believe Tomahawk hasn't reached the volumes that are coming in the next 2-3 years," the investor added.

Those opportunities make the current valuation especially difficult for Nova to reconcile with projected earnings growth. AVGO trades near 20 times fiscal 2027 earnings estimates, a multiple he considers too low given the company's expected expansion in AI chips and networking.

"The implied PEG ratio is slightly below 0.30x, which looks absurd to me," the investor said.

Nova continues to believe a multiple closer to 30 times fiscal 2027 earnings would better reflect Broadcom's longer-term prospects. Applying that figure to current consensus estimates produces his $585.90 price target, suggesting close to 55% upside from current levels.

The investor expects upcoming earnings results on September 2 to provide another opportunity to reconsider whether concerns following the June report deserved such a severe reaction.

"The current sell-off in AVGO looks unjustified to me," Nova summed up, assigning the stock a Buy rating. (To watch Nova Capital's track record, click here)

Wall Street largely agrees that Broadcom has room to recover. The stock earns a Strong Buy consensus rating thanks to 23 Buy recommendations, easily beating 3 Holds. The average 12-month price target of $516.32 implies about 36% upside from current levels. (See AVGO stock forecast)