$AVGO DCF valuation model
Most analysts believe Broadcom is significantly undervalued. Today I have prepared DCF workings for this semiconductor behemoth to challenge their estimates and figure out the true intrinsic value.
Key assumptions:
Explicit average 5Y/5Y growth @ 34%/13.8%
Long-term growth in perpetuity @ 2.6%
Adj. EBITDA Margin 55.3%
WACC @ 9.8%
Adj. EBITDA exit multiple of 10.2
Tax rate 12%
The input that drives reinvestment is the most recent Sales to Capital ratio = 1.46
Historical growth (for context)
Broadcom’s revenue recently has shifted from solid, acquisition-assisted compounding to an exceptional AI-led acceleration. Revenue rose from $27.5bn in FY2021 to $33.2bn in FY2022 (+21%), then slowed to $35.8bn in FY2023 (+8%), before jumping to $51.6bn in FY2024 (+44%). That jump was primarily helped by VMware consolidation. FY2025 revenue was $63.9bn (+24%). The current run-rate is much stronger: Q1 FY2026 grew 29%, Q2 grew 48% to $22.2bn, and management guided Q3 to $29.4bn, implying 75%+ growth Y/Y, driven mainly by custom AI accelerators and AI networking rather than software. For my DCF context, this supports a high near-term growth phase, but the FY2026 pace is clearly not a sensible long-term base case. I expect growth should normalize materially once AI comparisons become tougher and VMware’s acquisition effect fully laps.
Verdict
CL price target for Broadcom is 367 USD. Valuation suggests that the stock is trading at fair value. Although I do believe buying wonderful companies (which Broadcom without doubt is) at fair value can be a great deal, I am not a buyer here.
Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. If you choose to share it online, please credit my page as the source. Look at it as a thinking tool, not necessarily as a stock-picking tool.
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Disclaimer: This post is for informational and educational purposes only. I do not own shares in AVGO but can buy/sell them at any time after this post is published. Not financial advice. Do your own research.