Company Analysis: Broadcom (AVGO)

Broadcom New Corporate Headquarters, CA

This post delves into Broadcom Inc. (AVGO), examining its valuation, risks, key strategic catalysts, and our investment thesis for September 2025.

Company Overview

Basic Information

Company Name	Ticker	Industry	Headquarters	Market Cap (as of 2025-09-05)
Broadcom Inc.	NASDAQ: AVGO	Semiconductor & Infrastructure Software Solutions (Technology)	3421 Hillview Avenue, Palo Alto, California	$1.585 trillion USD

Business Summary

Broadcom Inc. operates as a leading global provider of:

Semiconductor devices: Offers networking chips (Ethernet, AI data centre connectivity), custom AI accelerators, wireless/broadband silicon (for smartphones, home/enterprise networks), storage networking, and custom silicon for set-top and telecom devices.- Infrastructure software: Delivers solutions focused on mainframe, cybersecurity, private/hybrid cloud, IT automation, and cloud cost management. The segment was significantly expanded with the acquisition of VMware (2024).

“Our products are used in enterprise and data centre networking (including AI networking and connectivity), home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data centre servers and storage, factory automation, power generation, alternative energy, and electronic displays.” (Prospectus Supplement, 2025)

Latest Financial Highlights:

EPS Q3 2025	$1.69 per share	+1.81 % Suprise
Revenue Q3 2025	$15.95 billion	+0.78 % Slight Beat
EBITDA Q3 2025	$10.7 billion
Free Cash Flow	$7.024 billion

Investment Thesis

Core View: Bullish

We believe Broadcom Inc.'s (AVGO) rapid AI-driven semiconductor growth and transformative VMware integration are driving accelerated top and bottom-line results, while major partnerships (notably with NVIDIA and OpenAI) and expanding enterprise cloud adoption position AVGO as a secular leader, justifying a bullish outlook in the long term with notable risks from large-customer concentration, integration execution, and macro/industry cyclicality.

Thesis Discussion

1.Key Performance Drivers

A. AI-Driven Semiconductor Expansion

• AI segment revenue grew from $3.8B in FY23 to $12.2B in FY24 (41% of FY24 semiconductor revenue).

• Q2 FY25 AI revenue was $4.4B (+46% YoY), with guidance for $5.1B in Q3 and $6.2B expected for Q4.

• Hyperscale data centre build-outs and contracts with OpenAI (multi-year, $10B+) reinforce AVGO’s leadership and revenue visibility in next-generation AI hardware.

  
  

B. VMware Integration Driving Software Growth

• Infrastructure Software revenue tripled YoY: $7.6B (FY23) to $21.5B (FY24), now 42% of total revenue, mainly due to the VMware acquisition.

• Software business adds a layer of recurring revenue, increases gross and EBITDA margins, and solidifies Broadcom Inc.’s critical position in enterprise IT.

  
  

C. Margin Expansion and Returns

• Gross margin expanded from 56.07% (Q2 2024) to 64.78% (Q2 2025).

• Adjusted EBITDA reached $10.0B in Q2 2025 (+35% YoY), with margin ~67%.

• Free cash flow hit a record $6.4B in Q2 (+44% YoY). FY24 FCF was $19.41B.

• Strong dividend ($0.59 quarterly) and stock repurchases ($7.0B in Q2 2025).

  
  

D. Strategic Partnerships as Catalysts

• Deepened collaboration with NVIDIA: Integrated NVIDIA’s Blackwell GPUs into VMware Cloud Foundation (VCF 9.0), making AVGO a linchpin in both public and private enterprise AI infrastructure.

• OpenAI $10 bn chip contract: Establishes AVGO as a crucial supplier for next-generation AI inference chips, diversifying future growth drivers.

2.Valuation

Multiples

• Market cap: $1.580T as of September 2025.

• Forward P/E of 40.3, reflecting a premium for AI/software growth compared to the industry standard.

• Current P/E of 85, highlighting the risk of overvaluation.

DCF Analysis

• Sources from Alpha Spread suggests the implied share price of AVGO is $158.57 (based on WACC = 9% and growth = 2%), again highlighting overvalution of 50%.

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3. Risks & Mitigation

Risk Category	Details & Commentary	Mitigation/Evidence
Customer Concentration	Top five customers = ~40% of net revenue.	Customer diversification efforts ongoing—major new wins (OpenAI, Walmart, hyperscalers), but risk remains elevated and industry-typical.
AI/Cloud Cyclicality	“Significant upturn in certain industry segments ... may not be sustainable.”	Broader software and private cloud business; exposure to both public and private sectors.
VMware Integration	Integration complexity and synergy realisation challenges.	Dedicated integration teams; active divestitures and synergy monitoring.
Indebtedness	$62.2B in debt; high leverage post-VMware.	Robust FCF, $7.5B revolving credit, proven capital allocation.
Tech & Supply Chain	Rapid innovation, supply bottlenecks, risk of product obsolescence.	Heavy R&D ($7B+), ecosystem partnerships (NVIDIA/AMD), supplier diversification, and inventory controls.
Cybersecurity/Legal	Global operations, privacy/data breach risk, and regulatory changes.	Quarterly CISO oversight, annual risk reviews, and compliance framework.

• Integration risk on VMware is managed via dedicated teams, cross-functional oversight, and divestitures.

• Macroeconomic and geopolitical risks remain only partly mitigable but are constantly under board/management review.

• Direct Quotes:- “Any loss of our significant customers and fluctuations in the timing and volume of significant customer demand…” (Q3 2025 10-Q)- “Failure to realise the benefits expected from the acquisition of VMware could adversely affect our business...” (Q2–Q3 2025 Risk Filings)

4. Major Catalysts & Strategic Developments

Development	Description	Growth Impact	Risk Consideration
NVIDIA + VMware AI Alliance	Native integration of NVIDIA GPUs with VMware VCF for private/hybrid clouds	Expands enterprise/AI TAM	Execution, margin, tech risk
OpenAI Custom Chip Partnership	$10B+ multi-year deal to supply custom AI inference chips	Anchor revenue, ecosystem validation	Supply chain, delivery risk
Tomahawk 6 AI Switching	World’s first 102.4 Tbps switch powering scale-out AI clusters	AI networking sector leadership	Heightened competition
Enterprise Cloud Wins (Walmart)	Large-scale deployments for private/hybrid cloud and edge modernisation	Diversifies customer base	Execution/retention

Numbers vs Consensus

• Q3 FY25 guidance: Revenue of $15.8B vs Q2 actual of $15.0B (+20% YoY actual), Adjusted EBITDA margin ≥66%.

• Next Q guidance (Q4): $17.4B, +24% YoY.

• Consensus gross/EBITDA margins continue to widen, reflecting a higher software and AI mix.

Buy, Hold or Sell?

Despite fundamentals indicating overvaluation, based on current growth, margin expansion, successful strategic partnerships, and a leading AI portfolio, AVGO is a BUY/BULLISH, contingent on effective management of customer concentration, execution, and macroeconomic risks. For long-term investors, the structural growth drivers justify holding through volatility. For new entrants, the risk/reward skews toward caution unless we see a pullback closer to a forward P/E in the low 30s or DCF-aligned levels.

Final Call

• If already invested → HOLD and ride the AI/software growth, given strong cash flows and secular positioning.

• If looking to enter → WAIT for pullbacks (e.g., macro-driven selloff or post-earnings dip). Target entry <35x forward P/E.

• Upside catalysts (AI demand > expected, faster VMware synergies) keep the bias tilted bullish, but valuation caps near-term upside

Disclaimer

This research is for informational purposes only and does not constitute investment advice. All opinions are based on publicly available data believed to be reliable, but accuracy is not guaranteed. Readers should conduct their own due diligence before making investment decisions.