Will Chip Giant Broadcom Be the Next $1 Trillion Company?

Worldwide, there are currently nine companies with market capitalizations of $1 trillion or higher. Taiwan Semiconductor Manufacturing (NYSE: TSM) fluctuates between crossing that threshold based on daily trading, so the true figure is more like 10 companies. However, investors want to know which company is next in line to join the exclusive $1 trillion stock club.

That could be chip giant Broadcom (NASDAQ: AVGO), which is involved with multiple industries, including artificial intelligence (AI). It's valued around $750 billion, so it still has a ways to go before achieving a $1 trillion market cap. And it's in a footrace with drugmaker Eli Lilly (NYSE: LLY), banker JPMorgan Chase (NYSE: JPM), and retailer Walmart (NYSE: WMT), which are all valued between $680 billion and $710 billion.

So, will Broadcom get there first? Let's find out.

Broadcom has many product lines

Broadcom does a lot of things in the tech space, with both software and hardware products significantly diversifying it.

On the software side, it offers cybersecurity, mainframe, and enterprise software. However, the biggest component in its software portfolio came through acquisition when it purchased VMware for $69 billion last year. VMware allows its clients to create virtual desktops, which helps improve a company's usage of computing resources in a secure manner.

On the hardware side, Broadcom has various connectivity switches that direct traffic to a data center. Its most popular ones are the Tomahawk 5 and Jericho3AI switches, which have seen a surge in popularity as AI demand has caused data center demand to surge. In the third quarter of fiscal 2024 (ended Aug. 4), these two products saw their revenue grow 300% year over year.

Broadcom also helps design custom AI accelerators, which provide better performance than graphics processing units (GPUs) when the workload is configured to be optimized to the chip design. Revenue from this line grew a stunning 250% year over year in the third quarter.

Broadcom clearly has some massive tailwinds in the AI space. The problem is they may be drowned out by the rest of the business, which is growing more slowly.

Wall Street is expecting a strong 2025 from Broadcom

Overall, in the third quarter, revenue rose 47% year over year, which looks impressive. However, when the VMware revenue is stripped out (the company wasn't a part of Broadcom during last year's quarter), this figure tumbles to just 4%. That's pretty disappointing, especially considering how well some subsets of its business are doing.

But that's in the past; how will Broadcom do in 2025 when the VMware acquisition is accounted for in year-over-year comparisons? Wall Street thinks it will do quite well.

For fiscal 2025, the Street expects revenue to grow 17% and earnings per share (EPS) to rise 29%. That's in line with how some other tech giants are performing, so Broadcom shouldn't be viewed differently, even if some of its business segments aren't performing at the same level.

The stock trades at a pretty reasonable 26.7 times forward earnings, which also places it around the same levels as its big tech peers (the sharp fall on the chart in October is due to analysts adjusting their future earnings expectations).

AVGO PE ratio (forward), data by YCharts.

Broadcom is essentially growing at the same pace and trading around the same range as other members of the $1 trillion club. As a result, it doesn't have the benefit of rapid growth or a cheap valuation that could quickly boost it across the $1 trillion threshold.

Its stock price will likely grow around the same rate as its EPS, since that rate is highly correlated to stock price growth over the long term. With around 30% growth expected in 2025, plus the need for its stock price to rise about 30% to achieve a $1 trillion valuation, don't be surprised if Broadcom becomes the next $1 trillion company sometime in late 2025.

Will that be enough to beat Eli Lilly, JP Morgan, or Walmart to the finish line? I'm unsure, but Broadcom has a fighting chance with its strong AI product lineup.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends JPMorgan Chase, Taiwan Semiconductor Manufacturing, and Walmart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.