Broadcom stock drop creates buying opportunity: Jim Cramer bullish on AVGO

Broadcom Inc. (NASDAQ: AVGO) recently saw a 7% drop in its stock price following its third-quarter earnings report.

Despite surpassing Wall Street estimates, the slight miss in revenue guidance for Q4 caused investor concern.

However, this decline offers a prime opportunity for investors to buy into a high-quality company at a discount, according to market expert Jim Cramer.

Broadcom reported strong earnings, but the forecast of $14 billion in Q4 revenue fell just shy of the $14.1 billion analysts had anticipated.

Still, Cramer remains confident in the stock, emphasizing Broadcom’s solid positioning in the semiconductor and software markets.

Broadcom offers more attractive P/E multiple

Cramer praised Broadcom’s proven M&A strategy, particularly its $69 billion acquisition of VMware, which has outperformed expectations.

He believes this acquisition, along with Broadcom's growing artificial intelligence (AI) business, sets the company up for continued growth.

Broadcom is expected to generate over $3.5 billion in AI revenues for Q4, a 10% sequential increase.

According to Cramer, Broadcom is a top contender in AI, offering a more attractive price-to-earnings (P/E) multiple than competitors like Nvidia.

Broadcom stock could be headed for $190

With a 1.37% dividend yield, Broadcom offers steady income at current levels.

The company is also focused on reducing debt accumulated from the VMware acquisition.

Once debt levels normalize, Broadcom is expected to initiate a significant stock buyback program, further enhancing shareholder returns.

While Broadcom's legacy business is currently under pressure, CEO Hock Tan believes it has reached a bottom and will begin to recover. On the earnings call, the chief executive said:

As AI revenues continue to rise and non-AI segments stabilize, Cramer sees the stock headed for $190—a potential 35% gain from current levels.

Broadcom's continued AI expansion, coupled with successful VMware integration, could push its market cap toward $1 trillion.

Wall Street analysts share this optimism, with an average price target of $193.