Broadcom Inc.AVGONASDAQ

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 15% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Sell

Fair Value: $218.75 per share(market-calibrated)

-32.0%

Upside to Fair Value

Current

$321.68

Pure Model

$209.54

Fair Value

$218.75

Bull Case

$289.04

Bear Case

$144.00

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

7.49%

Calibrated Growth

4.69%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $209.54.

What's Driving This Ratingfor AVGO

✓

CapEx already efficient

CapEx at 0.78% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 37.67% — below the sector mature average of 39.89%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $65.3B (37.67% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 53.88% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $160.72/share (17.0x terminal FCF) while exit multiple gives $258.36/share (34.2x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $321.68, the market implies 7.49% perpetual growth — 374bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 81.87% indicates efficient cash generation. FCF reaches $68.4B by Year 10 (39.47% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.26

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.16%

Cost of Debt

Pre-tax Cost of Debt3.81%

Tax Rate21.00%

After-tax Cost of Debt3.01%

Equity Weight (E/V)95.88%

Debt Weight (D/V)4.12%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (95.88% × 10.16%) + (4.12% × 3.01%)

= 9.86%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$98.3B	$168.8B	$144.2B	$155.2B	$173.4B
EBIT	$37.0B	$63.6B	$54.3B	$58.5B	$65.3B
Tax	$7.8B	$13.4B	$11.4B	$12.3B	$13.7B
NOPAT	$29.3B	$50.2B	$42.9B	$46.2B	$51.6B
+ Depreciation	$10.4B	$17.8B	$15.2B	$16.3B	$18.3B
- Capex	$766M	$1.3B	$1.1B	$1.2B	$1.4B
- Δ NWC	$451M	$429M	$68M	$74M	$82M
Free Cash Flow	$38.4B	$66.3B	$56.9B	$61.3B	$68.4B
Discount Factor	0.910	0.754	0.625	0.518	0.390
Present Value	$34.9B	$50.0B	$35.6B	$31.7B	$26.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$68.4B

Terminal Growth Rate3.75%

WACC9.86%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$1.2T

PV of Terminal Value$453.4B

Exit Multiple Method

Year 10 EBITDA$83.6B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$2.3T

PV of Terminal Value$913.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$352.8B

PV of Terminal Value$453.4B

Enterprise Value$806.3B

(-) Net Debt$49.0B

Equity Value$757.3B

Shares Outstanding4.7B

Price per Share$160.72

Exit Multiple Method

PV of Projected FCFs$352.8B

PV of Terminal Value$913.5B

Enterprise Value$1.3T

(-) Net Debt$49.0B

Equity Value$1.2T

Shares Outstanding4.7B

Price per Share$258.36

Pure Model Fair Value

$209.54

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
7.86%	$256.85	$264.64	$274.33	$286.70	$303.04
8.86%	$226.50	$231.43	$237.32	$244.49	$253.40
9.86%	$202.38	$205.69	$209.54	$214.08	$219.51
10.86%	$182.48	$184.81	$187.46	$190.51	$194.06
11.86%	$165.66	$167.34	$169.24	$171.38	$173.83

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$144.00

-55.2% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.57

Base Case

$209.54

-34.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.26

Bull Case

$289.04

-10.1% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.07

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth53.88%

Year 3 Revenue Growth24.06%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin37.67%

Terminal EBIT Margin39.89%

Tax Rate21.00%

Historical Capex / Rev0.78%

NWC / Revenue1.31%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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