Broadcom stock is on the cusp of a breakout despite lingering valuation concerns

Broadcom stock has jumped to its highest level since June 4 as investors buy the dip in technology companies. AVGO jumped to $418, up by 17% from its lowest point in July and 45% above the year-to-date low. This article explains why the stock will continue rising and possibly move above the year-to-date high of $495.

Broadcom stock is benefiting from the AI boom 

AVGO stock has several bullish catalysts that will drive it higher in the long term. First, the company will become a major player in the cybersecurity industry as AI-fueled hacks jump. Most recently, companies like OpenAI and Anthropic have confirmed that their AI tools are escaping and hacking companies.

This is just the beginning, with AI models getting more advanced. In China, companies like Alibaba, Moonshot, and DeepSeek have recently launched some of the most advanced AI models in the industry. 

These developments means that companies will need more cybersecurity tools to fight the threats. Broadcom is one of the biggest names in the cybersecurity space, thanks to its Symantec buyout. 

Most importantly, Broadcom has become the go-to partner for the biggest companies in the AI space. It recently extended its relationship with Apple, and is Google’s top partner in its TPU product.

Major deals in the AI space

The company has also inked a multibillion deal with OpenAI. Recently, OpenAI unveiled the chip that will be manufactured by the company. Broadcom is also a top partner for companies like Meta Platforms, Amazon, Microsoft, Oracle, and ByteDance. 

These deals explain why its revenue growth is continuing. The most recent results showed that it made over $22 billion in revenue in the second quarter, up by 48% from the same period last year. Its adjusted EBITDA jumped by 69% to $15.2 billion, while the free cash flow rose to $10 billion.

While some metrics fell short of expectations, we believe that Broadcom’s best days are ahead of it. Indeed, the average estimate is that the company’s annual revenue will jump by 65% this year to $106 billion. It will then make $173 billion next year, up by 63% YoY.

If this revenue growth continues, it means that the company will cross the $300 billion figure in the next few years.

Broadcom is a high-margin business, with its operating margin rising to 67%, and this figure may continue to grow.

These metrics helps to justify why Broadcom’s valuation is where it is today. It has a forward price-to-earnings ratio of 33, higher than the technology sector median of 25. 

Still, using the Rule-of-40 approach show that the company is not all that expensive. It has a Rule-of-40 metric of 115%, meaning that its growth and profitability margins are in sync. 

The main risk that may affect Broadcom’s performance is if the AI industry starts slowing down. Recent financial results by big-tech companies shows that they all plan to intensify their investments in the coming years, which is bullish for the company.

Broadcom stock price technical analysis

AVGO stock chart | Source: TradingView

The daily chart shows that the AVGO stock plunged and formed a big gap on June 3 when its profit metric came short of expectation. It is now attempting to fill the fair value gap after it found strong support along the 200-day Exponential Moving Average (EMA). 

The stock has formed a small inverse head-and-shoulders pattern, while the Relative Strength Index (RSI) has pointed upwards. 

Therefore, the stock will likely continue rising as bulls target the year-to-date high of $495. A move above that level will point to more gains, potentially to $500.

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