Broadcom said sales of its Tomahawk 5 and Jericho3-AI Ethernet switches grew fourfold (year over year) during Q3. That isn’t surprising given the strength of its accelerators business, and Nvidia’s GPU business, for that matter. Tech giants are spending tens of billions of dollars building AI data centers right now, which is a powerful tailwind for Broadcom’s networking equipment.

Broadcom generated $13.1 billion in total revenue across all of its businesses in Q3, which was a 47% increase from the year-ago period. Of that, $3.8 billion was attributed to the inclusion of VMware’s revenue. Broadcom closed the acquisition of that company in 2023, and only started reporting its revenue on a consolidated basis this year, which is temporarily inflating its total revenue growth.

Broadcom said AI products and services contributed $3.1 billion to its overall revenue during the quarter, and that could be the fastest-growing part of the entire organization going forward. In the upcoming fourth quarter, Broadcom expects to deliver $3.5 billion in AI revenue. This will represent a sequential increase of over 10%, compared to forecasted sequential growth of just 6.8% for its total revenue overall (which is expected to come in at $14 billion).

Broadcom is on track to generate a record $51.5 billion in total revenue for fiscal 2024. The company originally expected AI to account for $11 billion of that figure, but the segment has been so strong that management recently increased its forecast to $12 billion.

Broadcom isn’t consistently profitable on a GAAP accounting basis, so we can’t use the traditional price-to-earnings (P/E) ratio to value its stock. However, we can use the price-to-sales (P/S) ratio, which divides the company’s market capitalization by its trailing 12-month revenue.

Based on that calculation, Broadcom’s P/S ratio is currently 17.6. To be clear, that is not cheap — it’s close to double the stock’s average P/S ratio of 8.9 over the last five years.

However, Broadcom’s strong AI growth under the surface of its total revenue is enticing investors to pay a premium for its stock. As I mentioned, Broadcom only has to gain 19% from here to join the $1 trillion club, so if its P/S ratio remains constant, it simply has to grow its revenue by 19% in fiscal 2025 (which begins in December this year) to get there.

Wall Street expects Broadcom’s revenue to grow by 17.5% in fiscal 2025, which is in the ballpark. However, since the company raised its fiscal 2024 AI revenue forecast by a whopping $1 billion last quarter alone, there is a very strong possibility that the Street’s estimate for next year is low.

Nvidia CEO Jensen Huang believes data center operators will spend $1 trillion building AI infrastructure over the next five years. If he’s right, I think there is a good chance Broadcom will blow away all expectations in 2025.

The key risk in my prediction is that Broadcom’s P/S ratio could shrink because investors become averse to stocks with high valuations, which could add years to its journey toward the $1 trillion club. That’s something to keep in mind before buying in. But as long as investors maintain a long-term horizon of five years or more, they still have the potential to do very well in this stock.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,285!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,456!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $411,959!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Prediction: 1 Unstoppable Stock Will Join Nvidia, Apple, Microsoft, Amazon, Alphabet, and Meta in the $1 Trillion Club In 2025 was originally published by The Motley Fool