Broadcom (AVGO) is looking cheap after renewed AI pessimism has dragged it lower.

Broadcom faces valuation normalization as Wall Street shifts from expecting accelerating AI returns to accepting incremental improvements. Should you buy?

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AI stocks haven’t entered into a tailspin as the bears would have liked, but they are slowing down. Broadcom (NASDAQ:AVGO) is one of the biggest names out there. This company is a competitor to Nvidia (NASDAQ:NVDA) due to its custom chips, and it also has a software arm called VMware, which is critical for enterprises that need to run clean environments within their computers.

Broadcom has been among the fastest-growing names and is expected to grow even faster in the coming years. EPS is expected to grow 66% in FY 2026, followed by 57% growth in FY 2027. Revenue is expected to grow at a similar clip. You’d expect such euphoric expectations to drive euphoric price action, and you’d only be right up until November of last year.

AVGO stock has slowed down significantly since and is down nearly 22.7% from its highs as of this writing.

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How come?

The growth you’re seeing in Broadcom has become routine across the industry, and this is causing fatigue. AI promised them accelerating returns, with artificial superintelligence always being within arm’s reach. So far into 2026, those hopes have been dashed. As the market gets more familiar with AI and how it actually works, most investors are landing on the same conclusion: AI will see bite-sized incremental improvements going forward.

That same conclusion has led to many investors jumping ship and trying to time the peak of AI. Hyperscalers, chipmakers, and the broader AI sector are still delivering fantastic reports quarter after quarter, but the response from the market in 2026 is far more muted.

Pessimism is keeping valuations low as financials are starting to catch up to the prices. Some of these AI stocks are trading at just 20-30 times forward earnings despite being in the hypergrowth stage.

You are paying 28 times forward earnings for this stock. Considering Broadcom has consistently posted earnings ahead of expectations, the stock is likely even cheaper. The market has historically paid 43 times earnings for AVGO stock, with the current PE ratio at over 60 times. As earnings rise and the stock trades sideways, I expect the premium to shrink towards 40 and then stabilize. Hypergrowth stocks rarely trade below that.

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If we extrapolate earnings minus non-recurring expenses and then apply a 40x premium on it, here’s what we get.

It’s not that rosy.

I believe the market prematurely rewarded Broadcom, and the stock is now normalizing. Wall Street had already priced in multiple years of growth and is now in the “wait and see” phase.

AVGO stock is clearly quite cheap and is a solid pick with great financials. However, I would still not buy it unless you don’t have any exposure to it. I have two reasons as to why.

First things first, NVDA stock is far cheaper, and even Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) presents a better alternative.

NVDA stock trades at just 21 times forward earnings, with its growth rates also approaching hypergrowth levels. Margins have held strong, and it has a bigger moat than Broadcom. Nvidia’s GPUs also have wider use cases compared to Broadcom’s custom chips, and this makes Nvidia’s bull case more transparent. As for Alphabet, you’re paying 25 times forward earnings, but if you’re looking at 2030 earnings and beyond, GOOG stock is among the cheapest in the Mag 7.

My second reason has to do with the debt this company has. Broadcom carries $66 billion of debt against $14.1 billion of cash. No other big chipmaker or software company, for that matter, has a balance sheet this lopsided. The market is ignoring all that debt during the ongoing rally, but the moment things turn sour, this debt load will become an issue for AVGO stock. Interest rate cuts are looking far less likely, and investors are now betting on renewed hikes later this year. Holding a business with $50 billion in net debt during interest rate hikes is not a good idea when an alternative like Nvidia already exists.

If you are insistent on buying an underdog AI stock, I would even look towards AMD (NASDAQ:AMD) before AVGO stock. Sales growth is expected to be ~35% annually in the coming years for AMD, which is triple the average annual growth in the past three years. On the other hand, buying Broadcom no longer puts you ahead of the curve.

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