Broadcom (NASDAQ:AVGO) has become one of the biggest beneficiaries of the AI infrastructure boom, particularly as hyperscalers have turned to developing their own custom AI accelerators instead of relying solely on merchant GPUs.

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However, the stock has fallen roughly 22% from its 52-week peak as investors worry about several risks: major customers such as Google could diversify their accelerator suppliers, lower-margin custom silicon could pressure profitability, and the company’s valuation leaves little room for disappointment.

However, an investor known as The Quality Growth Investor (QGI) remains bullish on the semi giant’s prospects, believing the market is underestimating Broadcom’s competitive advantages, particularly in AI networking.

The investor’s central argument is that Broadcom’s AI networking franchise provides a durable competitive advantage. Even if hyperscalers design their own chips, they still require advanced networking infrastructure to connect massive AI clusters. Broadcom’s Ethernet switching and optical technologies are difficult for customers to replicate internally because they require expertise across silicon design, photonics, high-speed analog systems, and thermal packaging.

This means the company’s networking products remain largely independent of which accelerator ultimately dominates. Whether a data center uses Broadcom-designed chips, customer-developed accelerators, or Nvidia GPUs, the need for high-performance networking remains. The investor believes this reduces concerns that losing accelerator share with a particular customer would significantly damage Broadcom’s overall AI opportunity.

Meanwhile, Broadcom’s latest results reinforced the strength of the business. Semiconductor revenue surged nearly 80% year-over-year, while infrastructure software continued to grow steadily. Earnings increased even faster as expanding operating margins drove profit growth.

The bullish case is also supported by the size of future demand. Management expects AI semiconductor revenue to exceed $100 billion annually by fiscal 2027, with networking representing a substantial portion of that opportunity.

Broadcom is also expanding its customer base, with partnerships involving companies such as OpenAI adding further AI infrastructure opportunities. The investor believes each new accelerator customer can also become a networking customer, helping reduce concentration risk over time.

However, there are naturally some risks to consider. If AI networking growth slows more than expected, the stock could face further pressure. Profit margins could also come under strain if lower-margin custom silicon becomes a larger part of the business. Additionally, some newer AI customers rely on external funding, creating potential risks if AI investment weakens.

Despite these concerns, QGI believes Broadcom’s valuation remains acceptable. Although shares trade at roughly 42 times forward GAAP earnings and 33 times forward non-GAAP earnings, the investor believes the premium is reasonable given the company’s strong earnings growth and long-term growth prospects. “Yes,” QGI summed up, “the stock is expensive. But to refer back to my favorite Warren Buffett quote:

‘It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’”

Accordingly, QGI rates AVGO stock a Buy. (To watch The Quality Growth Investor’s track record, click here)

Most of the Street’s analysts agree. Based on 23 Buys vs. 3 Holds, the stock claims a Strong Buy consensus rating. At $516.32, the average target points toward a 12-month gain of 37.5%. (See AVGO stock forecast)