Diversifying your portfolio by investing in rapidly expanding companies can yield impressive gains and possibly surpass overall market performance. The S&P 500, which represents prominent U.S. corporations, has traditionally increased by around 10% annually, though this figure takes into account both up and down years. While there’s no guarantee of this rate, if it held steady, an investment would double within approximately seven and a half years.
A standout AI-related stock consistently beating the market average is Broadcom, often denoted by AVGO.
Due to the surge in technology over the past few years, the semiconductor and infrastructure company has consistently outperformed the market. Given its impressive growth this year as well, one might wonder if Broadcom continues to be a smart investment or if it’s approaching a potential downturn.
Broadcom has been a top growth stock over the past decade
Let’s examine the remarkable success of Broadcom over the past decade, contrasted with the S&P 500 for comparison.
| Year | S&P 500 Return | AVGO Return |
|---|---|---|
| 2024 | 23.31% | 107.69% |
| 2023 | 24.23% | 99.64% |
| 2022 | (19.44%) | (15.97%) |
| 2021 | 26.89% | 51.97% |
| 2020 | 16.26% | 38.55% |
| 2019 | 28.88% | 24.28% |
| 2018 | (6.24%) | (1.02%) |
| 2017 | 19.42% | 45.33% |
| 2016 | 9.54% | 21.78% |
| 2015 | (0.73%) | 44.30% |
It’s quite unexpected that in 2019, the S&P 500 outperformed Broadcom significantly more, with a return of almost 29%, compared to Broadcom’s 24% gain.
Looking back isn’t always a guide for what’s to come, yet the extraordinary success of tech stocks such as Broadcom over the past decade is hard to dismiss. Over this period, shares in Broadcom have skyrocketed by more than 2,000%, while the S&P 500 has only seen an increase of roughly 200%.
The fact that something happened in the past doesn’t tell us what will happen in the future. However, we can’t ignore the significant growth of tech stocks like Broadcom compared to the broader market over the last decade.
Can Broadcom’s impressive gains continue?
By the close of last week, Broadcom’s shares had climbed approximately 19% year-to-date, outperforming the S&P 500’s growth of over 6%. However, with a market capitalization of around $1.3 trillion and the stock being priced at 33 times its forecasted earnings (as per analyst predictions), it’s not an affordable investment option.
One potential concern is a heavy dependence on demand from major tech companies, often referred to as hyperscalers. These are large, influential players in technology and AI sectors. A reduction in their spending could have a substantial impact on Broadcom’s financial performance, given that these top five customers contribute approximately 40% of the company’s overall revenue.
In the latest financial quarter ending on May 4th, the company experienced a 20% increase in annual revenue compared to the previous year, reporting total revenue of approximately $15.1 billion. Additionally, profits skyrocketed, almost doubling to around $4.9 billion.
Should Broadcom maintain its impressive performance, it’s plausible to expect it to surpass the market in 2023 as well. However, it’s important to keep in mind the potential risk that hyperscalers might reduce their spending this year.
Is Broadcom stock a buy right now?
If you believe AI will continue to expand significantly and are considering an investment, Broadcom might be a wise choice for long-term holding. However, it’s crucial to keep potential risks in mind too. For instance, escalating tariffs and trade disputes could potentially hinder growth within the tech industry over the short term.
Previously this year, Broadcom’s shares struggled to match the performance of the S&P 500, largely due to market uncertainties. Although this seems like an issue from the past, investors should prepare for a potential downturn in the stock, as it currently trades at a high valuation and could experience a drop. Its strong history might be commendable, but it doesn’t promise that it will continue to outperform the market.
I recommend waiting on purchasing Broadcom shares for now, as the markets seem overly optimistic at present. Given that high expectations are already factored into the stock price, there’s a substantial risk of downward movement associated with owning this stock. While Broadcom isn’t necessarily a poor investment choice, I believe there are superior AI stocks available for investment at this time.
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2025-07-20 03:02