As Broadcom Launches Tomahawk Ultra Shipments, Should You Buy, Sell, or Hold AVGO Stock?

Broadcom Inc logo on building-by Poetra_ RH via Shutterstock

Broadcom (AVGO) stock is in the spotlight as the semiconductor giant begins shipping its breakthrough Tomahawk Ultra Ethernet switch, designed for AI and high-performance computing workloads. The Tomahawk Ultra is its latest innovation for AI and high-performance computing, and analysts have been bullish ahead of its launch.

The new switch delivers industry-leading performance, featuring 250-nanosecond switch latency at full 51.2 terabits per second throughput, which addresses the extreme demands of tightly coupled AI clusters. Key innovations include ultra-low latency switching, adaptable Ethernet headers that reduce overhead from 46 bytes to just 10 bytes, and lossless fabric technology that eliminates packet drops.

More News from Barchart

• It’s Never ‘Happened in the History of Tech to Any Company Before’: OpenAI’s Sam Altman Says ChatGPT is Growing at an Unprecedented Rate

• This Penny Stock Wants to Become the MicroStrategy of Dogecoin

• Option Volatility And Earnings Report For July 21 - 25

• Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now!

www.barchart.com

“AI and HPC workloads are converging into tightly coupled accelerator clusters that demand supercomputer-class latency,” said Kunjan Sobhani, lead semiconductor analyst at Bloomberg Intelligence, highlighting the product’s potential in what’s projected to be a “double-digit billions” market within years.

The Tomahawk Ultra’s 100% pin-compatibility with its predecessor ensures rapid deployment, while features like In-Network Collectives reduce AI workload completion times by executing operations directly within the switch chip.

With AI infrastructure spending continuing to surge and Broadcom positioning itself at the center of this transformation, the launch of the Tomahawk Ultra could be a significant catalyst for the stock’s performance in the coming quarters.

Is Broadcom Stock a Good Buy Right Now?

In the second quarter of its fiscal 2025 (ended in April), Broadcom reported record revenue of $15 billion, up 20% year-over-year, driven by explosive growth in AI semiconductors and continued momentum from its VMware acquisition. The semiconductor giant's AI revenue reached $4.4 billion, a 46% increase year-over-year and marking the ninth consecutive quarter of strong performance.

CEO Hock Tan highlighted Broadcom’s dominant position in AI networking, which now accounts for 40% of AI revenue and has grown by over 170% year-over-year. “AI networking, which is based on Ethernet, was robust and remains the preferred choice by our hyperscale customers,” Tan said, emphasizing Ethernet’s role as the standard for both scale-out and scale-up deployments.

Story continues

Broadcom estimates AI sales to rise 60% year over year to $5.1 billion in fiscal Q3, indicating the 10th consecutive quarter of growth. Tan indicated the company expects this growth trajectory to sustain into fiscal 2026, driven by accelerating inference demand as hyperscalers monetize their AI platforms.

The infrastructure software segment, led by VMware, generated $6.6 billion in revenue, up 25% year-over-year, as enterprise customers continue to migrate to subscription-based VCF software stacks. With over 87% of the company’s 10,000 largest customers now adopting VCF, the momentum for the transition remains strong.

Is AVGO Stock Undervalued?

Broadcom’s revenue guidance of $15.8 billion for Q3 indicates 21% year-over-year growth. Analysts tracking the tech stock expect revenue to rise from $51.57 billion in fiscal 2024 to $127 billion in fiscal 2029. In this period, adjusted earnings are forecast to grow from $4.87 per share to $15.44 per share.

Today, AVGO stock trades at a forward price-earnings multiple of 42x, which is significantly higher than its 10-year average of 17x. If Broadcom stock is priced at 25x forward earnings, it will trade around $386 in early 2029, indicating upside potential of 35%. If we adjust for dividends, cumulative returns could be closer to 50%.

Out of the 36 analysts covering AVGO stock, 32 recommend “Strong Buy,” one recommends “Moderate Buy,” and three recommend “Hold.” The average target price for AVGO stock is $299, just slightly above its current trading price.

www.barchart.com

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com