Will Broadcom be a trillion dollar stock by 2030?

You can’t stop progress. You can only hope to benefit from it.

Once upon a time, in the hazy past of January 1996, the oil giant ExxonMobil (NYSE: XOM) it was the first stock worth $100 billion. A year later, soft drink manufacturer Coca cola (NYSE: KO) rose to $131 billion and there were three stocks above the $100 billion mark. By the end of the 20th century, that club had 19 members and Microsoft (NASDAQ: MSFT) led the way with a market footprint of $604 billion.

These days, the market is exploring another benchmark. The first trillion-dollar stocks emerged in 2019. A coronavirus pandemic, an inflation crisis and a surge in artificial intelligence (AI) later, six companies have crossed the trillion-dollar mark. Soon you will see a lot of trillion dollar market caps. The turn of the millennium wasn’t long ago, and the $100 billion equity pool is already 120 names strong.

I’m pretty sure networking and semiconductor connectivity gurus Broadcom (AVGO -0.25%) will join the trillion dollar company before 2030. In fact, it could get there in just a few years.

Broadcom’s trillion-dollar prospects, by the numbers

Frankly, Broadcom has an easy path to $1 trillion. It’s already one of the biggest names in the market, with a market cap of $730 billion, so it only needs a slight push to cross that goal line.

From a purely mathematical standpoint, there are several reasons to believe that Broadcom will get there — and soon.

• Broadcom shares have gained an average of 40% per year over the past five years. The stock would only need one more year of this roaring rise to reach $1.022 trillion.
• Too optimistic? Good. Total profitability a S&P 500 (^GSPC 0.20%) the market index registered a compound annual growth rate (CAGR) of 15% during the same period. At this rate, Broadcom would reach $1.1 trillion by August 2027.
• I can lower the annual earnings a bit to see what happens. To reach a market cap of $1 trillion in four years, Broadcom would need a CAGR of nearly 11%. Move the goalposts to 2029 and 8% per year would be enough. Finally, to barely break through the trillion-dollar line in the summer of 2030, Broadcom only needs a 6% annual growth rate.

Six percent is well below long-term stock market averages and well behind Broadcom’s proven growth habits. By hook, by crook, and maybe including an acquisition or two, Broadcom should be able to meet my $1 trillion target well before 2030.

Broadcom’s growth engines

That’s basic math. But the practical side of Broadcom’s growth potential?

The company has many balls in the air. Connected devices are everywhere these days, like yellow cabs in New York or platform shoes at the disco. I mean, they’re everywhere — phones, cars, washing machines, step trackers, and dog collars all send data to the cloud, and I’m just scratching the surface with that list. As the leading supplier of the chips that make these connections, Broadcom’s growth seems unstoppable.

And that’s just the foundation of this company’s growth story. Broadcom is also discussing AI chip design with ChatGPT maker OpenAI and TikTok owner ByteDance. Custom AI processors tend to come with lower profit margins, but could also provide a robust revenue stream if large customers continue to seek Broadcom’s expertise.

Valuation concerns and market risk

The biggest potential pitfall on the road ahead is valuation concerns.

Broadcom’s stock is trading near multi-year highs on price-to-free-cash-flow, price-to-sales or price-to-earnings ratios. Bears may argue that Broadcom’s AI prospects and recent revenue growth have already factored into the stock. If the stock is priced to perfection, any misstep could send the price painfully low and push Broadcom further away from the dramatic $1 trillion flag.

Value investors shouldn’t look too hard at richly priced Broadcom stock. This is an idea for growth-oriented investors who don’t mind a high price and high market risk, as long as the company can grow its long-term revenue streams.

So the road ahead could be quite bumpy depending on how the global economy and the rise of AI plays out. Broadcom’s arrival at the trillion-dollar goal may be delayed. Even so, I expect it to reach that line well before 2030, even if it goes through some sharp price corrections first. So you should check your risk tolerance, maybe pick up some Broadcom stock, and then buckle up for a roller coaster ride to a trillion dollar market cap – and beyond. Not every wireless signal investor’s cup of tea, but a promising growth investment for those who dare.