Broadcom’s AI Push Catches Wall Street’s Eye, Including Jim Cramer and Nancy Pelosi
Chipmaker Broadcom Corp.’s (AVGO) stock has been on a tear this year, rallying significantly since the start of 2023. While the stock has recently consolidated, it has caught the attention of some prominent investors, including CNBC’s Jim Cramer and House Speaker Nancy Pelosi.
Key Takeaways:
- Cramer’s endorsement: The Mad Money host praised Broadcom as a stock he "likes very much" after Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, disclosed buying shares of the company.
- Strong AI revenue: Broadcom’s recent Q3 earnings beat Street estimates driven by significant growth in its artificial intelligence (AI) revenue and continued strength in its VMware business.
- Pelosi’s interest: Rep. Nancy Pelosi purchased 20 Broadcom call options in June, further highlighting the stock’s appeal to high-profile investors.
- Reasonable valuation: Despite its strong performance, Broadcom trades at a forward price/earnings multiple of 26.81, which is lower than the multiple for its AI competitor Nvidia (NVDA).
- Analysts bullish: The average analysts’ price target for Broadcom is $198.66, indicating over 21% potential upside from current levels.
Broadcom’s AI Bet Is Paying Off
Broadcom has emerged as a key player in the AI space, transitioning from a company often overlooked to a major tech force. It is now the 11th most-valued global corporation, boasting a market capitalization of over $766 billion. This makes it the highest-valued tech company outside of the "Magnificent Seven," excluding Tesla and TSMC.
The company’s recent earnings report showcased the strength of its AI strategy. Broadcom’s AI revenue continues to grow at a rapid pace, contributing significantly to its overall success. The company also raised its AI revenue guidance for the fourth quarter and the full year, reflecting its confidence in the segment’s continued growth.
Valuation & Market Sentiment
While Broadcom’s stock price dipped slightly after a slightly lower-than-expected fourth-quarter guidance, it has rebounded significantly, rising nearly 20% from its post-earnings lows. This rebound suggests investor confidence in the company’s long-term growth prospects.
Compared to its primary AI competitor, Nvidia, Broadcom’s valuation remains attractive. Nvidia’s forward price/earnings multiple hovers around 41-49, significantly higher than Broadcom’s 26.81. This disparity highlights Broadcom’s potential for further growth, given its robust AI performance and relatively more appealing valuation.
Investor Interest
The interest in Broadcom, as evident in Cramer’s endorsement and Pelosi’s investment, highlights the company’s growing appeal to investors. This interest stems from the company’s strong AI focus, its robust financial performance, and its reasonable valuation compared to its peers.
What to Watch for
Moving forward, investors will be closely watching Broadcom’s performance in the AI space. Investors will also be paying close attention to the company’s ability to sustain its growth trajectory amidst a challenging global economic environment.
The growing interest in Broadcom from high-profile investors, coupled with its strong AI revenue and attractive valuation, suggests that the company is well-positioned for continued success in the years to come. However, investors should remain mindful of broader market conditions and the ongoing volatility in the tech sector.
