At today's price, Broadcom's stock is pricing in about 25% annual free-cash-flow growth for the next ten years. Over the past five years, the company's actual FCF growth averaged about 18% a year — the market is asking for meaningfully more than Broadcom has already been delivering, though not an extreme stretch.
At its current price, AVGO implies ~25.4% annual FCF growth for the next 10 years, discounted at 10%.
Broadcom's actual 5-year (FY2020–FY2025) FCF growth averaged 18.3% a year; revenue grew 21.7% a year over the same period.
Required growth vs. historical growth
Required growth from the reverse DCF below. Historical CAGRs from FY2020–FY2025 (10-K FY2021, FY2025). For context, the most recent quarter (FY2026 Q2) grew revenue 48% year over year, with FY2026 Q3 guided at +84% — well above this "10-year average" required rate, though sustaining that pace for a full decade is a separate question.
Sensitivity: what if the discount rate moves?
| WACC | 8% | 9% | 10% (base) | 11% | 12% |
|---|---|---|---|---|---|
| Required growth | 20.1% | 22.9% | 25.4% | 27.8% | 30.0% |
Model: FCF grows at rate g for 10 years, then converges to a 2.5% terminal growth rate thereafter (two-stage DCF).
What would move this number
- Switching to trailing-twelve-month FCF (~$32.8B) instead of FY2025's audited figure lowers the required growth rate from 25.4% to 22.7% at a 10% discount rate — a larger starting base needs less future growth to justify the same price.
- Using a more conservative three-year (FY2023–2025) average FCF ($21.3B) instead raises the required growth rate to 28.7%. FY2025's actual FCF sits +26% above that three-year average, within the ±40% normalization threshold, so the base case uses FY2025's figure directly rather than an average.
- A more conservative 12% discount rate pushes the required growth rate up to 30.0%.
Show your work
Inputs, sources, model assumptions, and the calculation
- Share price$392.43 — stockanalysis.com, Aug 17, 2026 close
- Diluted shares outstanding4.876B — 10-Q Q2 FY2026, p.14 (EPS calculation note)
- Market cap$1,913.5B — price × diluted shares (calculated)
- FY2025 free cash flow$26,914M — 10-K FY2025, p.50: operating cash flow $27,537M minus capex $623M
- Net debt$48,958M — 10-K FY2025, p.47: total debt $65,136M minus cash $16,178M
- Enterprise value (market cap + net debt)$1,962.4B — calculated (the reverse DCF's target value)
- Discount rate (WACC)10% base case — large S&P 500 company default
- Terminal growth rate2.5% — long-run GDP-level assumption
Model: EV = Σ(t=1 to 10) FCF×(1+g)^t / (1+WACC)^t + terminal value, solved by bisection for the value of g that equates present value to today's enterprise value. Solving for EV = $1,962.4B, FCF = $26,914M, WACC = 10% gives g ≈ 25.44%.
Normalization check: FY2025 FCF ($26.9B) is +26.2% above the FY2023–2025 three-year average ($21.3B) — within the ±40% threshold, so FY2025's figure is used directly, without normalization.
Historical CAGR calculation: 5-year FCF CAGR = (FY2025 FCF / FY2020 FCF)^(1/5) − 1 = ($26,914M / $11,598M)^(1/5) − 1 = 18.3%. FY2020 FCF is calculated from the FY2021 10-K's prior-year comparative cash flow statement (operating cash flow $12,061M minus capex $463M). 5-year revenue CAGR = ($63,887M / $23,888M)^(1/5) − 1 = 21.7%.
The fine print
- Change the discount rate, the FCF base, the projection window, or the terminal growth rate, and the answer moves — as shown, the required rate ranges from about 22.7% to 30.0% depending on assumptions.
- A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
- Whether 25% annual growth is realistic depends on the AI chip demand cycle and competitive dynamics — AI semiconductor revenue has accelerated for nine straight quarters, which cuts in favor of this being achievable, while customer concentration and rising competition cut the other way.
- Any investment decision, and its outcome, is your own responsibility.
Frequently asked questions
What growth rate does AVGO's stock price assume?
At today's price, Broadcom's stock is pricing in about 25% annual free-cash-flow growth for the next ten years.
How does that compare to Broadcom's actual growth?
Over the past five years, Broadcom's actual free-cash-flow growth averaged about 18% a year — below the ~25% required, meaning the market is asking for meaningfully more than Broadcom has already delivered, though not an extreme stretch.
What share price was used for this analysis?
This analysis used $392.43, as of Aug 17, 2026.