Broadcom’s Supply Bottlenecks – Not Demand – Continue to Offer Investors a Discount I Keep Buying
Broadcom's stock is down while its revenue has surged dramatically, and the reason behind that gap points to something most investors misread as a red flag but one shareholder treats as a buying opportunity.
My position in Broadcom (NASDAQ:AVGO | AVGO Price Prediction) grew last week, and I expect to add more after its next earnings report. The stock closed at $326.08 on October 30. That’s down 12.74% over the past year, even though the business grew revenue 85.5% year over year last quarter. That gap between the stock and the business is why I’m still accumulating shares.
Supply Limits Are Why I Keep Buying
Customers want more custom AI silicon than Broadcom can physically build, and the market treats that shortfall as weakness. On the September 2 earnings call, CEO Hock Tan gave an AI semiconductor outlook of about $115 billion for fiscal 2027 and $230 billion for fiscal 2028. Then he added: “Our demand actually exceeds this outlook, and we will work to improve supply.”
He named the choke points: “leading-edge silicon availability, substrates, and HBM memory,” along with land, power and data center shells. Broadcom plans to start making substrates at its Singapore fab in fiscal 2027. It also expects capital spending to rise to $1.4 billion in Q4, up from $532 million in Q3. What I see is a company building its way out of constraints while customers wait in line.
Three Numbers Behind My Conviction
First, growth keeps speeding up. AI semiconductor revenue hit $16.70 billion in Q3, up 221% year over year. Management guides Q4 to about $21.7 billion, up 236%.
Second, the cash pays for the income I care about. Free cash flow reached $13.665 billion, or 46% of revenue. During the quarter, Broadcom paid $3.1 billion in dividends and reduced $5.6 billion of outstanding debt. The quarterly dividend stands at $0.65 after the company’s fifteenth consecutive annual increase, which works out to about a 0.8% yield at today’s price.
Third, management keeps delivering. Q3 non-GAAP EPS of $3.32 beat the $3.2382 estimate, the company’s ninth consecutive EPS beat. Based on the last four quarters of non-GAAP EPS, I’m paying about 33 times trailing earnings for that record.
Why My Money Skips NVIDIA and AMD
The business NVIDIA (NASDAQ:NVDA) runs is excellent. Still, its dividend yield is only about 0.13%. Its supply obligations have rose to $279.00 billion, and its guarantee obligations are capped at $108.5 billion. Investing for retirement, I prefer Broadcom’s income and its shrinking liabilities, which fell 4.21% year over year.
Advanced Micro Devices (NASDAQ:AMD) trades at 129 times trailing earnings, pays no dividend and has a trailing operating margin of 17.2%. Broadcom guides its Q4 operating margin to about 66%.
Customer Concentration Is the Risk I Watch Most Closely
Customer concentration could hurt me. Broadcom works closely with just six XPU customers, and it expects Anthropic to become the largest of them in 2027. Broadcom may also provide “modest residual value guarantees” on lab financing deals. Gross margin guidance of about 73% compares with 78% a year ago, as memory-heavy XPUs make up more of the mix. If one lab stumbles, my position will feel it.
That risk still hasn’t changed my thesis, because these customers want more chips than Broadcom can ship. Outside partners also underwrite the financed assets on their own. On October 26, four major financial firms announced a $63 billion financing structure with Broadcom. Serious capital sees the same demand I do, and the suppliers of power, cooling, and networking around these buildouts are a story of their own (we covered seven of them in a free AI infrastructure report).
What Keeps My Buy Button Active
Management sees demand for 30 gigawatts across its six customers. Each time substrates, lasers and memory catch up, Broadcom turns more of that waiting demand into revenue. Meanwhile, a 5.27% year-to-date decline lets me buy in for less. I’ll keep buying until supply catches up with the order book.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
