Broadcom Trading at 15.93 P/S: Is the Premium Valuation Justified Amid AI Boom?

Broadcom Inc. (AVGO) has emerged as one of the standout performers in the semiconductor space, driven by surging demand for AI infrastructure. However, the company’s current valuation metrics raise questions about whether the recent rally has already priced in the growth story.

Valuation Premium Demands Closer Scrutiny

Currently trading at a forward 12-month price-to-sales (P/S) ratio of 15.93X, Broadcom commands a notable premium relative to its peers and the broader semiconductor sector. The Computer and Technology sector averages a P/S of 7.39X, while comparable players NVIDIA and Marvell Technology are valued at 15.17X and 6.86X respectively. With Broadcom’s D-rated Value Score, the market is clearly betting big on the company’s future growth trajectory—but the question remains whether this premium is sustainable.

AI Revenue Explosion Fuels Growth Narrative

The core driver of Broadcom’s outperformance lies in its accelerating AI business. Fiscal 2025 witnessed a remarkable 65% surge in AI revenues, reaching $20 billion. The company’s specialized XPU silicon—application-specific integrated circuits essential for training generative AI models—has gained significant traction among major cloud providers including Alphabet and Meta Platforms.

Broadcom’s latest Tomahawk 6 switching architecture has captured substantial market momentum, with the company’s AI switch backlog now exceeding $10 billion. Looking ahead, management projects first-quarter fiscal 2026 AI revenues to double year-over-year to $8.2 billion, signaling continued momentum in this high-margin segment.

The company’s customer base has also expanded meaningfully. Beyond established hyperscalers, Broadcom secured orders from Anthropic—a notable AI player—to deliver Alphabet’s TPU Ironwood infrastructure. In fiscal 2025’s third quarter alone, Broadcom received a $10 billion order for these systems, followed by an $11 billion order in the subsequent quarter from the same customer.

Performance Metrics Reflect Market Leadership

Over the trailing 12 months, AVGO shares have appreciated 49.5%, outpacing both the broader sector’s 27.2% return and NVIDIA’s 40.2% gain. Marvell Technology declined 31.6% during this period, underscoring Broadcom’s competitive advantages in capturing AI infrastructure spending.

This outperformance reflects not just AI momentum but also Broadcom’s diversified portfolio. The company’s consolidated backlog reached $162 billion in fiscal 2025, with $73 billion designated as AI-related work scheduled for delivery over the next 18 months. Beyond AI switches, Broadcom’s networking products—including Tomahawk 6 and Jericho 4 Ethernet solutions—continue to generate steady demand.

Headwinds Complicate the Investment Picture

Despite impressive fundamentals, several concerns temper the bullish case. Management’s gross margin guidance for fiscal 2026 reflects a challenging mix dynamic, as higher-margin AI revenues growth paradoxically compresses overall margins due to product mix shifts. Additionally, first-quarter fiscal 2026 guidance signals a sequential decline in non-AI semiconductor revenues, alongside modest expansion in the Infrastructure Software segment.

Competitive pressures are intensifying. NVIDIA continues benefiting from strong adoption of its Hopper and Blackwell GPU architectures, while Marvell has secured over 20 multi-generational XPU socket wins with custom silicon solutions. The AI chip market is crowded, and Broadcom cannot assume permanent dominance.

Growth Outlook Remains Solid

The Zacks Consensus Estimate for fiscal 2026 earnings stands at $9.93 per share—up 2.2% over the past month—implying 45.6% year-over-year growth. Fiscal 2026 revenues are projected at $94.03 billion, representing 47.2% growth from fiscal 2025’s reported figure.

For the first quarter of fiscal 2026 specifically, earnings consensus is $2.02 per share (up 1 cent over 30 days), suggesting 26.3% growth sequentially. First-quarter revenues are estimated at $19.26 billion, indicating 29.1% year-over-year expansion.

The Verdict: Hold and Monitor

Broadcom’s AI-driven growth story remains compelling, supported by substantial backlog visibility, expanding customer relationships, and innovative product development. The recent Wi-Fi 8 silicon portfolio expansion further diversifies revenue streams beyond core AI switching.

However, the current P/S multiple leaves little room for disappointment. With soft margin guidance, rising competition, and macroeconomic uncertainties hanging over the sector, accumulating at current levels presents elevated risk. For existing shareholders, holding makes sense given the multi-year growth visibility. For new investors, waiting for a more attractive entry point—particularly if valuation multiples compress—would be prudent. Broadcom carries a Zacks Rank #3 rating, reflecting this balanced outlook.