Broadcom Inc. (AVGO) shares climbed 5% on Wednesday following the announcement of an expanded multi-year agreement with Apple, but the stock remains 20% below its all-time high of $495, placing it in a local bear market. Investors are now weighing whether the company's deepening ties to the artificial intelligence sector can propel the stock back to record levels.
Apple Deal and AI Partnerships Bolster Revenue
Apple disclosed on Tuesday that it is extending its partnership with Broadcom in a deal valued at over $30 billion. The agreement will involve the production of more than 15 billion U.S.-made chips and includes an expansion of Broadcom's Colorado facility. This builds on a relationship that has been a key revenue driver for the chipmaker.
Beyond Apple, Broadcom has secured major contracts with OpenAI, Meta Platforms, and Alphabet. The OpenAI deal positions Broadcom as the manufacturer of custom chips designed by the ChatGPT creator, with initial testing now underway. Jefferies analyst Blayne Curtis estimates this partnership alone could generate over $50 billion in revenue for Broadcom by 2028. The company has also extended its work with Meta and Alphabet, further cementing its role in the AI infrastructure buildout.
These agreements have already translated into strong financial results. In its most recent fiscal second quarter, Broadcom reported revenue of $22.1 billion, a 48% year-over-year increase. AI semiconductor revenue surged 143% to $10.8 billion, driven by demand for custom AI accelerators and networking solutions.
Growth Expectations Remain High
Wall Street forecasts continued momentum. According to Yahoo Finance, analysts expect third-quarter revenue to jump 84% to $29.4 billion, followed by a 93% rise in the fourth quarter to $34.9 billion. Full-year revenue is projected at $106 billion, with next year's figure climbing to $172 billion. These projections reflect Broadcom's successful transformation through both organic growth and strategic acquisitions, including the $61 billion purchase of VMware, as well as earlier deals for CA Technologies, Symantec Enterprise Security, LSI Corporation, and Brocade Communications.
However, valuation remains a point of contention. Broadcom trades at a forward price-to-earnings ratio of approximately 40, higher than peers such as Nvidia and Micron. The company's Rule-of-40 metric—a combination of net profit margin (39%) and revenue growth (32%)—yields a score of 71%, which is considered healthy but may not fully justify the premium multiple.
Technical Analysis: Support Levels and Outlook
From a technical perspective, AVGO shares have been in a sustained uptrend since April 2023, when they traded near $138. The rally peaked at $495 before a pullback that brought the stock to a low of $356. The stock has since recovered to around $395, but remains below the key support level of $414, which was the highest swing point in December 2024.
On the positive side, Broadcom has found solid support above its 200-day moving average. As long as the stock holds above this level, the technical setup remains bullish. A move back above $414 could open the path toward retesting the year-to-date high of $495. Conversely, a break below the 200-day moving average would signal further downside risk.
For context, the broader semiconductor landscape has seen mixed signals. While Broadcom benefits from custom chip demand, other segments face headwinds. For instance, the DRAM ETF recently plunged 6.5% amid a global memory selloff, highlighting the uneven nature of the AI-driven rally.
Investors will be watching Broadcom's next earnings report for confirmation that its AI revenue growth can sustain the current valuation. The company's ability to maintain its Rule-of-40 performance and execute on its large customer contracts will be critical in determining whether the stock can reclaim its record high.
This article is for informational purposes only and does not constitute financial advice.
