5 Reasons to Buy Broadcom Stock Like There's No Tomorrow

It's been a tough past few weeks for the stock market. And understandably so. New tariffs don't just threaten to make most goods more expensive here and abroad. These higher prices could cause economic weakness, perhaps even prompting a global recession. Technology stocks have been hit particularly hard, of course, since they're arguably the most vulnerable to economic headwinds.

Applying a shop-worn cliché to the current situation, investors have thrown the baby out with the bathwater. Broadcom (NASDAQ: AVGO) shares are down 25% from their January peak thanks to the marketwide pullback. But this misguided move is ultimately a buying opportunity for five key reasons.

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1. The tech world really, really needs Broadcom's wares...

Most investors have heard of Broadcom. Most investors, however, would also be hard-pressed to name a single product it manufactures. That's OK, though. Being slightly off of the radar has allowed the company to become a dominant force in its sliver of the technology arena.

In simplest terms, Broadcom makes digital communications components for computer networks, data centers, and telecommunications platforms. This includes everything from the circuitry that connects hard drives to motherboards, wireless antennas, fiber-optic interfaces, and more, plus all the software needed to make this hardware work.

But the bulk of its recent growth has been driven by the explosive advent of artificial intelligence (AI).

While Nvidia might make the computer processors found in the heart of the vast majority of the world's AI platforms, these processors are only part of this technology. Nvidia's processors must also be intraconnected with tech that's just as quick. That's where products like Broadcom's new Sian3 and Sian2M digital signal processors make a difference, handling AI data up to a blistering pace of 1.6 terabytes per second.

And that's just one of many data center solutions Broadcom offers. The artificial intelligence industry now recognizes it needs much of what Broadcom makes. That's why the company's AI-driven revenue grew 77% year over year during the quarter ending in early February, growing to more than one-fourth of Broadcom's total business.

2. ...and nobody else makes (most) of it

It would be inaccurate to say this company doesn't have competitors. Smaller outfits like Coherent, Amphenol, and Qualcomm all operate in most of the same spaces that Broadcom does.

None of these other players, however, seem to enjoy the same dominant reach that Broadcom does within the digital communications and connectivity space. JPMorgan analyst Harlan Sur suggests Broadcom controls on the order of 80% of the AI data center ethernet switch market, for instance, underscoring the idea that it's the industry go-to name when it comes to interconnecting a massive rack of individual AI processors.

The company's portfolio of 20,000-plus patents plays an important role in the enduring dominance of its top markets. But credit must also be given to the fact that Broadcom's research and development arm is one of the best as well as one of the best-funded in the business, with nearly $10 billion being spent on R&D last year alone. That makes it tough for would-be competitors to catch up -- and then keep up -- with its work.

3. Demand for its products should be significant as well as long-lived

Broadcom's previous quarter's AI business clearly soared. But was that just a one-off surge that can be chalked up to lucky timing? Probably not. As CEO Hock Tan suggested in December, the market for AI data center components that Broadcom already dominates could be worth between $60 billion and $90 billion by 2027. For perspective, the company only did about $4 billion worth of artificial intelligence business in its most recently completed quarter. That leaves a great deal of room for growth for at least a few more years.

This is still just the beginning. Market research firm Market.us believes the worldwide artificial intelligence data center market is set to grow at an annualized pace of 27% through 2034.

And that's just one of Broadcom's businesses. Non-AI technology (like fiber-optic communications and wireless connectivity) markets will still continue growing during this time as well, as the world continues to digitize, automate, and wirelessly connect itself.

4. Broadcom is building shareholder value in more than one way

This growth won't be perfectly even, however. Its pace will ebb and flow along the way. Broadcom stock is likely to ebb and flow at least as much, as investors price in their ever-changing opinions on this evolving pace of progress.

Shareholders won't necessarily be fully subjected to every short-term swoon, though.

See, while the bulk of this ticker's price reflects the company's top- and bottom-line growth, Broadcom is one of the few technology stocks that also pays a regular dividend out of its earnings. While the current forward-looking yield of 1.4% isn't exactly thrilling, it is respectable.

It's also based on a dividend that's been raised in each of the past 14 years and by more than a little. The stock's split-adjusted quarterly dividend payment has roughly doubled over the course of just the past five years, underscoring the strength and reliability of the underlying company's profit growth.

5. Broadcom stock is trading at a deep discount

Finally, buy Broadcom stock like there's no tomorrow simply because the stock's on sale in a big way.

Again, this ticker's pullback from its January high makes enough superficial sense. Investors panicked over the onset of what's since turned into a complicated tariff standoff between the world's top two economic superpowers. The toll this might take on Broadcom still isn't completely clear. But the crowd isn't going to risk finding out the hard way that it's sizable. Many people are understandably heading to and staying on the sidelines.

Curiously, however, analysts aren't flinching. Even with ample time to consider recent developments and change their minds about Broadcom's likely future, the vast majority of these professionals still consider this stock a strong buy. They also sport a consensus price target of $239.78, which is 27% better than Broadcom stock's present price. That's not a bad way to start out a new position.

Sure, the analyst community as a whole can sometimes be wrong. This seems less likely with a closely watched name like Broadcom, though. It's more likely than not that this level-headed crowd sees through all the short-term noise that most investors don't see through at this time, recognizing how important and resilient the company's products are to the telecom and technology sectors.

Should you invest $1,000 in Broadcom right now?

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JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Nvidia, and Qualcomm. The Motley Fool recommends Broadcom and Coherent. The Motley Fool has a disclosure policy.