Where Will Broadcom Stock Be in 5 Years?

Where Will Broadcom Stock Be in 5 Years?

With stocks up more than 500% over the past five years, Broadcom (NASDAQ:AVGO) has been a big winner of the artificial intelligence (AI) boom. Let’s take a closer look at the stock’s pros and cons to determine if it can generate similar returns over the next half-decade.

Why Broadcom?

The current iteration of Broadcom was born from the merger in 2016 of Avago Technologies And Broadcom Company to unlock synergies and better respond to the demands of major clients. It specializes in semiconductor products, enterprise software and data center equipment. And he appeared alongside Nvidia as an ideal way for investors to bet on the picks and shovels of the AI ​​gold rush.

Unlike Nvidia, which is primarily known for its high-end general-purpose products graphics processing units (GPU) like the H100 and A100 (which drive ChatGPT), Broadcom focuses on client customization.

The company is a leader in market for Application-specific integrated circuits (ASICs), which are chips designed specifically for a particular company’s use case. Broadcom’s more than three decades of custom chip manufacturing have given it the experience and customer relationships needed to quickly adapt to growing demand for AI. The company’s main customers include AalphabetIt is Google and Metaplatforms.

Business is booming

Excitement about AI is helping to improve Broadcom’s business results. Second-quarter revenue jumped 43% year-over-year to $12.49 million, driven by demand for data center hardware and Broadcom’s recent acquisition of VMware, a specialty software company in virtual machines, which run programs and deploy applications to the cloud.

Although Broadcom is far from being a pure AI player, its presence in different technological niches gives it welcome diversification. And while this strategy could limit near-term growth compared to more niche competitors like Nvidia (whose sales jumped 262% in its most recent quarter), it offers Broadcom investors more security because it is less vulnerable to a potential slowdown in demand for AI chips. .

Where Will Broadcom Stock Be in 5 Years?

Image source: Getty Images.

Over the next five years, the chip industry could potentially face overcapacity as technological advancements begin to plateau and data center customers stop upgrading their hardware as frequently. SO from Broadcom diversification could become more useful over time.

Broadcom’s bottom line is also impressive, with a earnings before interest, taxes and depreciation (EBITDA) of $7.43 billion, or 59% of revenue. This measure adds non-cash expenses such as stock-based compensation and temporary restructuring charges related to the recent VMware buyout.

Is Broadcom stock a buy before the stock split?

Despite its healthy fundamentals, Broadcom began attracting the attention of many retail investors after announcing a whopping 10-to-1 ratio. stock split, designed to reduce its four-digit stock price by 90% when it goes live on July 15. Stock splits do not change a company’s market capitalization (the value of all its shares combined) or its valuation relative to earnings. But they can make stocks more liquid and provide a powerful signal that a company’s equity is moving in the right direction.

But regardless of the stock split, Broadcom appears to be a solid way to bet on the long-term future of the AI ​​sector.

The company is experiencing respectable growth, and its diversification into different types of technologies could provide a layer of protection against a potential slowdown in chip demand. With a forward price/earnings ratio (P/E) multiple of 38, it’s also relatively affordable compared to Nvidia, which trades at 52 times projected earnings. Broadcom looks capable of outperforming over the next five years and beyond.

Should you invest $1,000 in Broadcom right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Meta Platforms and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Where will Broadcom stock be in 5 years? was originally published by The Motley Fool

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