In This Article:
Key Points
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Broadcom easily outperformed the S&P 500 over the past few years.
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It grew organically, made smart acquisitions, and expanded its AI business.
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The stock still looks reasonably valued relative to its long-term growth potential.
Back in 2023, only 27% of the stocks in the S&P 500 outperformed the broader index. That ratio, which represented its lowest percentage in three decades, and only rose to 28% in 2024.
Those low percentages support the idea that it's smarter to invest in an S&P 500 index fund than to try to time and beat the market with individual stocks. However, some of those S&P 500 stocks which consistently outperform the market might still be worth buying as long-term investments.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
One of those market-beating stocks is Broadcom (NASDAQ: AVGO), which was formerly known as Avago before it acquired the original Broadcom and inherited its brand in 2016. Over the past five years, Broadcom's stock surged more than 680% as the S&P 500 roughly doubled.
Let's see why this monster stock keeps crushing the market -- and why if it's still worth buying today.
How rapidly did the "new" Broadcom grow?
Before Avago acquired the original Broadcom for $37 billion, it sold a wide range of wireless, storage, networking, optical, custom, and radio frequency chips. That "old" Broadcom competed against Avago in the storage and networking chip market, but it also sold a wider range of mobile, multimedia, and Wi-Fi/Bluetooth combo chips. The "new" Broadcom didn't produce any high-end chips, but its products remained essential for many enterprise, industrial, and mobile customers.
From fiscal 2016 to fiscal 2024 (which ended last November), Broadcom's revenue grew at a compound annual growth rate (CAGR) of 18.5%. A lot of that growth was driven by its big acquisitions -- which included the storage networking products provider Brocade in 2017, the mainframe and enterprise software provider CA Technologies in 2018, Symantec's enterprise security business in 2019, and the cloud software giant VMware in 2023.
Through those acquisitions, Broadcom evolved from a chipmaker into a more diversified tech company which generated 42% of its revenue from the infrastructure software business in fiscal 2024. The remaining 58% came from its semiconductor solutions business.
That diversification gives Broadcom more protection from the semiconductor market's cyclical downturns while increasing its exposure to the growing cloud and cybersecurity software markets. Data centers are also installing more of Broadcom's networking, optical, and custom accelerator chips to power their latest AI applications. Those catalysts are helping Broadcom grow much faster than other comparable chipmakers like Texas Instruments.