Broadcom Has Trailed the S&P 500 This Year. That Shouldn't Last Much Longer.
Key Points
Broadcom has established itself as the leading ASIC chipmaker, and its revenue is accelerating tremendously.
Its upcoming earnings report may be better than expected if Nvidia's recent results are a reliable gauge.
Broadcom (NASDAQ: AVGO) has truly become the next Nvidia in terms of recent price movements. Both chipmakers have crushed the S&P 500 over the past five years, but the year-to-date returns paint a very different picture.
A strong earnings report recently put Nvidia's year-to-date gains above the S&P 500, but Broadcom still lags the famed index. Broadcom is only up by 6% year to date, but this sluggish performance shouldn't last forever. Here's why Broadcom is primed to continue beating the S&P 500 in the long run.
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AI chip demand isn't slowing down
Artificial intelligence (AI) chips are foundational for large language models (LLMs), agentic AI, cloud computing, and other technologies. They will also play a major role in physical AI applications, such as humanoid robots and self-driving vehicles.
Grand View Research projects a 30.6% compound annual growth rate (CAGR) for the AI industry through 2033. Some companies will grow faster than others, and Broadcom is already proving it's a top-tier chipmaker in terms of growth.
The chipmaker reported 48% year-over-year revenue growth in the second quarter. AI semiconductor sales drove almost half of that growth.
Broadcom specializes in application-specific integrated circuits (ASICs), which are different from Nvidia's graphics processing units (GPUs). Soaring Nvidia demand isn't a bad thing for Broadcom since they are similar companies but not direct competitors like Nvidia and Advanced Micro Devices.
The Marvell Technology news is overblown
Marvell Technology is one of the biggest reasons Broadcom is trailing the S&P 500. The company, which also provides ASIC chips, partnered with Alphabet, which could lead to a long-term relationship and up to $120 billion in potential revenue over the next six years.
The theory is that Alphabet may become less reliant on Broadcom if the Marvell partnership goes well.
The guidance from Broadcom's Q2 results indicated that AI semiconductor revenue will at least triple year over year in its fiscal 2026 Q3 results. Broadcom also expects consolidated revenue to reach $29.4 billion, representing an 84% year-over-year increase. That projection also implies a 32% sequential jump.
This type of growth suggests that Broadcom's top customers are not slowing down on their purchases. Alphabet already works with Nvidia and AMD, two of the largest GPU makers, so it's not foreign for the company to work with two of the leading ASIC chipmakers.
Nvidia's earnings offer a hint for Broadcom's upcoming results
A catalyst is on the horizon that can help Broadcom catch up to the S&P 500 and outperform it by the end of the year. Broadcom is set to report its fiscal 2026 Q3 results on Sept. 2.
Investors will look closely at AI semiconductor revenue, which is supposed to reach $16 billion per guidance. It would represent more than half of total revenue in that quarter, and as it becomes a larger slice of Broadcom's business, its sales should continue to accelerate.
Investors can take a look at Nvidia's results for a hint of what Broadcom may deliver when it reports earnings. Nvidia crushed guidance by generating $96.2 billion in its fiscal 2027 Q2, compared to guidance of $91 billion.
It's much harder for a company like Nvidia to beat guidance and set higher targets. Nvidia is aiming for $108 billion in fiscal 2027 Q3 revenue, so it's still growing. Broadcom hasn't tapped into as large of a market share yet, so it should be easier for the ASIC chipmaker to beat guidance and offer optimistic remarks for the rest of the year.
Notably, Broadcom only trades at a 20 forward price-to-earnings (P/E) ratio. That valuation puts the stock in a prime position to rally if it beats expectations when it reports on Sept. 2.
Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.