This Tech Stock Pays a Growing Dividend and Rides Every AI Tailwind. What's Not to Like?
This Tech Stock Pays a Growing Dividend and Rides Every AI Tailwind. What's Not to Like?
Chris Neiger, The Motley FoolSun, May 24, 2026 at 12:50 AM UTC
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Key Points -
Broadcom is winning in two ways at once -- custom AI chip sales surged 140% in Q1, while data-center networking revenue jumped 60%.
Unlike cash-hungry AI peers, Broadcom has 77% gross margins, which have fueled a 15-year dividend growth streak and a new $10 billion buyback.
Broadcom shares are expensive, but its AI tailwinds and a new long-term deal with Google help to justify the premium.
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There are a lot of great AI stocks to choose from these days, but they don't all offer the same long-term opportunities or tap into artificial intelligence (AI) trends as Broadcom (NASDAQ: AVGO). Nor do they pay a growing dividend, as the company also does.
Broadcom is benefiting from two big AI trends, including a surge in data center demand and shift by big tech companies toward customized processors.
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And it's likely that Broadcom's impressive run isn't done yet. Here's why.
A person using a computer.
Image source: Getty Images.
How Broadcom is catching two big AI tailwinds
AI is a vast market, so let's narrow it down to exactly how Broadcom benefits from it. First, its custom AI processors are increasingly in demand by leading tech companies to optimize their AI systems.
Broadcom's processors can be designed specifically with a tech company's large language models in mind, making them more efficient and boosting performance. This advantage helped its custom AI application-specific integrated circuits (ASICs) have a 140% increase in sales in the first quarter of 2026, thanks to expanding deals with Alphabet, Meta, Anthropic, and OpenAI.
The chipmaker recently announced that it has expanded its partnership with Alphabet's Google, which keeps Broadcom designing Google's tensor processing units (TPUs) and supplying networking components through 2031.
Broadcom's AI-specific semiconductor revenue more than doubled in the first quarter to $8.4 billion, accounting for about 43% of its total revenue. And more good times are on the way with management estimating its AI chip revenue will reach $100 billion by 2027.
And that's not the only AI trend benefiting the business. The company's networking systems -- mainly through its popular Tomahawk switches for data centers -- are also experiencing a surge in demand as hundreds of billions of dollars are invested in data center expansion.
Broadcom's AI networking revenue rose 60% in the most recent quarter to $2.8 billion -- accounting for about one-third of all the company's AI sales. And management believes this will continue to expand, with networking sales making up 40% of AI revenue in the second quarter.
A growing dividend ain't half bad, either
High-growth AI stocks aren't typically the companies you would expect to pay dividends, which is one of the ways Broadcom is unique.
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The company returned $3.1 billion to shareholders in the first quarter -- or $0.65 per share -- and has a history of raising its dividend. It has increased it annually for 15 consecutive years. Management also repurchased $7.8 billion in shares in the quarter and authorized an additional $10 billion repurchase program through 2026.
While many AI companies are focused on reinvesting earnings in research and development (R&D) rather than paying dividends, Broadcom's high profitability and soaring revenue allow it to do both.
The company ended the first quarter with $14.2 billion in cash and cash equivalents and had consolidated gross margins of 77%. That cash and high profitability make it easy for Broadcom to return cash to shareholders, while still investing $1.5 billion into R&D in the quarter.
OK, fine, there's one thing not to like
It will probably come as no surprise that Broadcom's stock isn't exactly cheap right now. Most AI stocks aren't.
After its shares climbed 79% over the past year, the trailing price-to-earnings ratio (P/E) of nearly 81 is significantly higher than the tech sector's average P/E of 36.
Still, with Broadcom clearly tapping into established -- and very profitable -- AI trends and securing new deals that should help keep its current momentum going, investors probably won't regret adding some Broadcom stock to their portfolio. And the company's growing dividend is just icing on the cake.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.
Source: “AOL Money”
