Prediction: $5,000 Invested in Broadcom Could Be Worth This Much in 2028

This may come as a surprise to some investors, but Broadcom (NASDAQ:AVGO) has lagged broader equities this year. The stock is up just 2% while the S&P 500 has climbed 12% to date. Broadcom has delivered excellent financial results and remains a leader in its corner of the artificial intelligence (AI) industry, so one might think the stock would be crushing the market, but recent developments, including lower-than-expected guidance, have weighed on the company. Will Broadcom continue lagging the market over the next couple of years? Let's try to predict how much $5,000 invested in the company could be worth by 2028.

Broadcom's large opportunity

Nvidia (NASDAQ:NVDA) is the undisputed leader in the GPU (graphics processing unit) market, and its hardware continues to be in high demand amid the AI revolution. That has allowed the company to charge premium prices for its GPUs. However, some corporations have sought to diversify away from Nvidia's GPUs to avoid their high prices and associated supply constraints.

That's where Broadcom comes in. The company develops custom AI chips that may not be quite as powerful as Nvidia's GPUs, but are much cheaper and highly effective for certain AI workloads. Broadcom has worked with several major corporations and currently holds long-term contracts with some of them, including Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META).

Broadcom has already been handsomely rewarded for its efforts. Revenue and earnings growth, particularly in its AI semiconductor business, have been outstanding in recent quarters. And here's the best part: Broadcom could maintain that momentum over the medium term. According to management, Broadcom has signed enough supply deals to generate $115 billion in AI semiconductor revenue in 2027.

The company's trailing-12-month (TTM) revenue is $89.1 billion. So, in 2027, Broadcom expects its AI semiconductor revenue to exceed its entire TTM revenue -- that's significant. But it won't stop there. Broadcom again said its AI revenue could reach at least $230 billion in 2028, doubling from 2027 levels. This points to an incredible demand for Broadcom's products, and there is at least some evidence that it could continue beyond 2028.

Consider the case of Anthropic, an AI company that might go public in the next few months. Anthropic's IPO could be one of the largest on record, and the company is apparently planning one of the largest AI build-outs ever, which it hopes to accomplish over the next decade.

Anthropic has signed multi-year commitments with several companies, including Broadcom. Anthropic carries $161.2 billion in commitments for some of Broadcom's products, and most of that is non-cancellable. That amount isn't massive, but the point is that some corporations aren't just thinking about the next couple of years.

As Broadcom continues to establish itself as a leader in its industry, it may attract more similar deals from other companies and ride the wave of the AI revolution well beyond 2028.

Here's the math

Broadcom is trading at just 19.4x forward earnings, versus an average of 20.9x for information technology stocks. Given recent trends, an average earnings-per-share (EPS) growth rate of 50% over the next couple of years isn't out of the question for the company. But how will the market value Broadcom in 2028? That depends on whether the AI build-out continues mostly unabated and whether Broadcom can remain a leader in its niche. In my view, both outcomes are somewhat likely, so I'd expect the market to assign Broadcom a forward earnings multiple at roughly the same level as today.

Suppose the company's EPS does grow 50% (on average) and its forward price-to-earnings drops to 17 by October 2028, around when its fiscal year should end. Under that scenario, $5,000 invested in the company today will be worth roughly $9,858, for a total return of about 97.2%. Of course, there is some uncertainty, and our assumptions could be wrong in either direction. However, in my view, the general direction is likely correct: Broadcom is well-positioned to deliver excellent returns over the next two years (and beyond).

Prosper Junior Bakiny has positions in Alphabet, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.