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Broadcom stock is selling off after reporting earnings. However, Broadcom stock is up nearly 30% over the past month. Even after selling off over 4%, the company is still up from a week ago. So, Broadcom stock is still doing very well. But the question is, how much higher can Broadcom stock go? The current market cap is now $1.2 trillion, and the best returns for the stock may now be in the past.
The 3-year total return for Broadcom is 393%. The 5-year total return is 830%. The company is one of the best businesses in the world, but the company's stock price may be getting ahead of itself. How much higher can it go? And when we screen for the most valuable stocks in the entire world, Broadcom is now number eight.
That's ahead of economic giants like Berkshire Hathway. For years, Broadcom was considered one of the best dividend growth stocks you could buy. The company traded at an unreasonably low valuation and at times traded at a dividend yield between 3 and 4%. In fact, you could have bought the stock at a 3% dividend yield just back in 2023.
And for context, this is a company that was growing its dividend at a 31% 10-year compound annual growth rate. Now, ironically, that dividend growth and growth overall has slowed down at Broadcom as the stock price has boomed. The three-year tagger of the dividend is now 12.9%. As some of you know, I bought Broadcom stock all the way back in early 2023, and I wrote it up all the way until summer 2024, where I sold the stock after a 200% total return.
And I had done so because the company didn't grow earnings or free cash flow at all in that time period. And the stock price had gone up multiple of hundreds of percent. and part of their semiconductor networking business started to take off with AI. Their earnings started growing again. So, I missed out on a year of potential gains.
Not really though, as I took all of that Broadcom investment and put it into Visa, where I'm up 46% since then. And that trade was looking very good up through November and a little less good to start 2025. And then it was looking very good again during April. And after the stock shot back up to all-time highs, it's again looking like I should have stuck with Broadcom.
And I do get asked a lot whether I regret selling Broadcom. As an example, in my video I just posted yesterday, I got asked, "Ever regret selling AVGL?" And the answer is no. I do think there are much better stocks to buy in today's market than Broadcom right now. And there has been many points over the past year where that trade into Visa looked like the better option and I still feel very confident about my investment in Visa as a core part of my dividend growth stock portfolio for many years to come.
That said, Broadcom is still a great business and their earnings results were pretty good. As you can see, they've been able to grow their earnings per share over the past year and that is something that they will need to keep up. So, today I'm going to give you my thoughts on Broadcom's latest earnings report, break down their latest quarter and why the stock may be selling off.
Plus, I'll give you a full updated look at Broadcom stock financials, a valuation estimate on the company and price targets, and finally, I'll share a comparison with Nvidia, which in my opinion highlights why there are possibly better semiconductor investments in today's market than Broadcom. So, with that said, let's roll the intro and jump into this stock analysis.
My name is Zach. This is Dividend Data. You should leave a like and subscribe to the channel if you enjoy the video. I'll be doing a lot of stock analysis content this month. As an example, I just did United Healthcare, and I did a video on MLX, which is a new oil and gas stock in my portfolio. So, click subscribe if you want to stay up to date on all these videos.
So, let's jump right into it. We have Broadcom, ticker symbol AVGO. Broadcom is a very interesting business. They're huge, but yet most people have never heard of them. They don't really know what they do. And it's kind of this like financial monster that's been constructed over the years. The CEO Hawkan comes from a private equity background and the company has taken those private equity origins to create this just like financial monster.
They continue to just make acquisition after acquisition of all these different semiconductor technology companies often in pretty boring but high cash flow categories. They then transitioned into infrastructure software as well. And that was highlighted by their large acquisition of VMware just this past year.
And as we stand today, about 58% of Broadcom's revenue comes from their semiconductor business. and 41% comes from infrastructure software. And these businesses are very diversified as well. There's semiconductor businesses all over the place. Whether it's a bunch of chips for wireless, server and storage, networking, which AI has now created into a large growth business for the company, industrial applications, broadband and chips used in cable modems and set top boxes for your TV.
This company is all over the place. And as you can see, their earnings per share has grown at a high rate over time. Broadcom's revenue per share is grown at 20% 10-year compound annual growth rate. And my favorite thing about the company is their free cash flow, which is how I came to finally pulling the trigger on buying Broadcom stock.
This company is a cash flow machine, and I'll explain more about why. Their free cash flow per share has grown at 29.97% 10-year compound annual growth rate. This has slowed down to an 8.9% 3-year keer. However, their latest quarter does put them back on a trend to growth. And even after making a large VMware acquisition, their free cash flow per share actually went down in fiscal 2024.
However, the latest quarter has put them back onto a path of growth. And as we take a look at the annual cash flow statement for Broadcom, it's these three columns on the end that we're going to pay attention to about why this company is such a cash flow beast. As you can see, in fiscal 2024, they generated just under $20 billion in cash from operations, but their capital expenditures were only $500 million.
So that means they had $19.4 billion in free cash flow. And this company always keeps their capex highly constrained. And the reason is that they don't manufacture these chips themselves. They're what's known as a fabulous semiconductor company. And they let their manufacturing partners, most notably Taiwan Semiconductor, take that cost on themselves.
So Broadcom does not directly have to bear any of that investment cost. And this allows fabulous semiconductor companies when they're doing well to be free cash flow machines. And that's what you see with Broadcom. And that's true also with companies like Nvidia that have been just printing cash over the past few years.
It's this annual free cash flow that has powered the returns for Broadcom investors. It has done that through large dividend increases over the years. Broadcom regularly pays out 30 to 50% of their free cash flow towards their dividend payment and they have a quarterly dividend that has grown on an annual basis for a number of years.
And I would expect this dividend to continue growing at a high rate over the long term. However, it's also this free cash flow that has allowed the company to be aggressive and make large acquisitions to grow their business. This is part of the flywheel that has allowed Broadcom to become a giant over the past few decades.
And since they have a private equity background, they are also not afraid at all to use debt in these acquisitions. In fact, it's a big part of every single one. If we take a look at the company's net debt over time, you can see that it spikes every single time they do an acquisition and then they pay that off and then they do a new acquisition that then brings the debt to all-time high levels.
Then they pay that off and then they do more acquisitions and then they start paying that off and then they do more acquisitions and they start paying that off and then they do a huge acquisition like they just did with VMware and then they have slowly started paying off some of that debt and sometimes that has come with share dilution as well.
As an example, in 2016, there was a large amount of dilution and there was an additional around 10% of share dilution from their VMware acquisition. So, why is Broadcom stock down over 4% after earnings? Well, let's take a look at their earnings results from this quarter. So, for Q2 2025, they beat their revenue expectations by 0.23% coming in at $15 billion.
On the surface level, they beat their results. Revenue beat analyst expectations by 0.23% at $15 billion. and earnings per share came in ahead of earnings estimates at a $158 for non-GAAP earnings per share. However, it's important to note that this is actually behind their Q1 2025 and you can see that in the earnings per share chart as the data is coming in right away to dividend data.com.
So, this is an important trend to pay attention to as Broadcom will need a lot of future earnings growth to justify their current valuation. Speaking of that valuation, we need to talk about their AI semiconductor business, which is the entire reason why the stock price is going up. That is the main growth story in Broadcom.
And if you take that out of Broadcom's business, this stock should go down 60% plus. And to summarize the latest earnings call and quarterly results, I'm going to be using the AI analyst over on dividend data.com. This is the best way to keep up with earnings news, and it's built into dividend.com with our other stock analysis and portfolio tracking features.
So, if you want to use this research tool and follow along at home, you can sign up right now. It's the best deal we ever offer. We currently have our summer sale where you can get 50% off annual membership and you get to lock in that discount price for light. So, click the link in the description and pin comment of the video in order to get access to that exclusive summer sale.
There's a 30-day money back guarantee, so there's no risk in trying it out. So, how did Broadcom do this quarter? Well, their Q2 revenue was up 20% year-over-year, and that growth was driven by strength in their AI semiconductor segment. And this is the important part that is not mentioned a lot with people who analyze Broadcom.
That is also coming from the VMware acquisition. And that was especially true last fiscal year when the stock rallied a bunch. Their revenue from AI semiconductors reached over $4.4 billion in the quarter, which is up 46% year-over-year. And this is primarily in their networking business and in their business where they do custom AI accelerators.
As an example, I think one of the customers they work with is Google. It should be important to note that these are not chips that compete with Nvidia. This is on the networking side of the business. And again, if you're investing in Broadcom stock, this is the only store you need to pay attention to.
They just gave guidance for Q3 2025, saying that they expect AI semiconductor revenue to reach $5.1 billion, which is up 60% year-over-year, marking the 10th consecutive quarter of growth. However, this is where the diversification kind of starts to work against the story with Broadcom. Let's say they do $20 billion this year.
And when you compare to a company like Nvidia, the data center business, which is entirely their AI revenue, is over 88% of their business. And that business is actually growing faster than Broadcom's AI business with higher gross margins, operating margins, and net margins. Nvidia also happens to trade at a much lower PE multiple compared to Broadcom.
Now, does that make any sense? I don't think so. While Nvidia was seeing all that massive growth in 2023 and 2024 and 2025, Broadcom on paper saw their annual revenue grow from $35 billion in fiscal 2023 to $51 billion in fiscal 2024. But here's the key difference. That wasn't from Broadcom's AI business yet.
That difference in revenue was almost entirely attributable to their VMware acquisition. And in order to get that, they took on a bunch of debt and they diluted shareholders. Their operating cash flow and free cash flow barely grew that year and their stock price went up hundreds of percents. Now that we sit in 2025 going on to 2026, a lot of the future growth for Broadcom is coming from their AI semiconductor business.
But it's important that you understand it's very different from Nvidia's business. And Broadcom as an entire entity is very different from Nvidia. And in my opinion, it does not make any sense that the company would trade at a higher multiple than Nvidia. But before I get even more into that comparison with Nvidia, let's do a valuation and price target on Broadcom stock.
So again, using the AI analyst over on dividend.com, you can type in any ticker symbol and DCF valuation and it will do a calculation for you. And you can scroll down and use this cool DCF calculator where you can make and edit the assumptions. So here was the default output for Broadcom stock. It gave it an implied share price of $18467 which implies nearly 30% downside from the current price.
However, that was definitely on the conservative end as it assumed 0% revenue growth in 2028 and 2029. Other assumptions were 21% revenue growth in 2025, 16% in 2026 and 14.4% in 2027. So, let's make this a little more aggressive. We'll do 20% in 2026, 15% in 2027, and we'll do 10 and 10 in those later years.
So, this isn't an aggressive case in my opinion for Broadcom. As an example, this is assuming that in fiscal 2029, they do over $60 billion in annual free cash flow. They did $19 billion in 2024. And to be even more generous for the company, I'm going to say that the company will trade at a free cash flow multiple of, let's say, 30.
So I'm upping it in the assumption from 25 to 30. That gives the company an implied share price of $262. So again, I am doing extremely aggressive projections and valuation for the company. And that just gives it today's stock price. So that's what I mean when I say this stock is trading at a very aggressive valuation.
It's really hard to tell if there's going to be a lot of upside from here. And if we take a look at the price targets on Wall Street, they're not that much ahead of right now either. The average price target is $251.50. The highest price target is $300. So that would imply a little bit of upside. And the lowest price target is $200.
So if you're looking to buy Broadcom stock right now, I can't say it's a great deal. And if you're looking to invest just in the AI trend or AI semiconductors, there's way better options. As an example, just in semiconductors, Nvidia is a far more attractive valuation than Broadcom. The company is nearly 90% AI based revenue.
It is the same exact high margin high free cash flow fabless semiconductor model where they don't manufacture the chips themselves. So Nvidia is printing money right now. They are growing overall free cash flow at a 96% 3-year compound annual growth rate. This past fiscal year they had $64 billion in cash from operations and $60 billion in free cash flow.
They also have a much better balance sheet than Broadcom and a way better debt situation. Their net debt is currently negative 43 billion. Nvidia is a cashrich money printer right now. So Broncom is now being traded in the same category as a high growth AI stock like Nvidia. So if you're going to invest in that kind of company, the obvious choice in my opinion is just to buy Nvidia.
You get more exposure to the AI upside with higher growth rates, higher margins, and also the reality that Nvidia is a much more innovative company compared to something like Broadcom. Broadcom comes from that private equity background and they are much more of a financial kind of Frankenstein compared to Nvidia.
Nvidia is founder-ledd and leading basically the computing revolution. So if you want to invest in AI semiconductors, quote unquote, I'd go Nvidia rather than Broadcom. That said, Broadcom has been a great investment over the past decade. If you own the stock from a long time ago, you don't have to sell.
You can continue holding and it will probably do fine. I personally just don't feel very comfortable if I was to invest new money in Broadcom stock at current valuations. So, if you want to use the stock research tool I showed throughout the video, then you can sign up at dividendata.com. Again, we have a great summer sale going on right now where you can lock in 50% off the annual membership for life.
This is the best deal we ever offer and there's a 30-day money back guarantee, so no risk in trying it out. And if the tool helps you find just one better stock, then it way more than pays for itself. Let me know in the comments what you think about the Broadcom versus Nvidia investing case. And if you enjoyed, please leave a like, comment, and subscribe to the channel for future stock analysis content. Thanks for watching.
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