Broadcom (AVGO) Stock: A Hidden Bargain After 30% Decline, Says Jim Cramer

Key Takeaways

Table of Contents

On Mad Money, Jim Cramer highlighted Broadcom as potentially undervalued, noting the shares “may be too cheap to ignore” following a decline exceeding 10% over the past month
Shares have retreated approximately 7% following the company’s September 2 quarterly earnings announcement and currently trade about 30% beneath peak levels
Third quarter fiscal results showed revenue of $29.6 billion, representing an 85.5% year-over-year increase, while AI semiconductor sales jumped 221% to reach $16.7 billion
Management increased annual AI revenue expectations to $58 billion, with longer-term forecasts targeting $230 billion by the 2028 fiscal year
The stock’s forward price-to-earnings multiple has contracted to 18.1x, while valuation analysis suggests fair value near $459.95, indicating potential upside of 35.5%

Broadcom shares were changing hands around $347 on September 17, gaining approximately 2.3% during the session, though remaining significantly below the highs reached in June.

Broadcom Inc., AVGO

During his September 14 Mad Money broadcast, Jim Cramer spotlighted Broadcom as particularly noteworthy among artificial intelligence stocks that have experienced significant pressure. His perspective was clear: the shares have been disproportionately punished relative to what he characterized as modest guidance disappointment.

“Down here, roughly 150 points below its June high, the stock may be too cheap to ignore,” Cramer stated.

The decline Cramer referenced began following September 2, when the company released its third fiscal quarter performance. Revenue totaled $29.59 billion, exceeding the $29.25 billion consensus estimate. AI chip sales specifically reached $16.7 billion, representing a 221% year-over-year surge.

Even with results topping expectations, shares declined 3.39% that session. Market participants took issue with forward guidance, which was perceived as merely in-line rather than delivering the outsized beats that had become anticipated.

This dynamic has emerged as somewhat typical. The previous quarter followed an identical trajectory: strong results followed by a 13% share price decline.

Revenue Projections and Expansion Plans

Executives raised their full-year AI revenue forecast to $58 billion from the previous $56 billion estimate. Looking further ahead, they outlined projections of $115 billion for fiscal 2027 and $230 billion by fiscal 2028. The company’s remaining performance obligations total $179.2 billion, providing substantial forward revenue visibility.

Broadcom serves major hyperscale customers including Alphabet and Meta, delivering specialized accelerators and advanced networking infrastructure supporting some of the industry’s most ambitious AI deployments.

Total revenue expanded 85.5% year-over-year during the fiscal third quarter, while levered free cash flow reached $39.4 billion through July 31. The company’s return on equity currently stands at 44.2%.

Valuation Metrics and Chart Analysis

The post-earnings correction has compressed AVGO’s forward price-to-earnings ratio to approximately 18.1x, down from higher levels seen earlier in the year. On a trailing basis, the multiple remains at 42.4x. The free cash flow yield currently measures 2.4%.

Fundamental valuation frameworks indicate fair value around $459.95, pointing to potential appreciation of 35.5% from present prices. Wall Street analyst targets suggest even greater potential, with consensus projections implying approximately 57.6% upside as of late July.

Technical indicators present a more cautious outlook. Both daily and weekly momentum signals register as Strong Sell. The daily relative strength index stands at 32.46, approaching oversold conditions. The weekly RSI reads 43.26.

Institutional investor interest remains robust. Data from Insider Monkey shows 170 hedge funds maintained positions in Broadcom during the most recent reporting period, down marginally from 173 in the preceding quarter. Fisher Asset Management controlled the largest stake at 15.1 million shares.

Short selling activity remains minimal, with only 1.08% of the float held in short positions as of August 31.

AVGO closed at $347.30, adding $7.79 during the trading session.

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