Title: Is Broadcom Stock Still a Worthy Investment for 2025, Following its 2024 Stock Split and Surge?
In 2024, shares of semiconductor and infrastructure software giant Broadcom (AVGO 0.29%) have soared by an impressive 63%, outpacing the S&P 500's 29% return, as of December 6. The 10-for-1 stock split, implemented in July, likely contributed to this surge by making the stock more accessible to a broader investor base.
Broadcom's remarkable performance over the past decade is equally impressive. It returned an astounding 2,140%, converting a $1,000 investment into a substantial $22,400. In contrast, the broader market returned a more modest 252% over the past decade.
However, the question remains: is Broadcom stock a worthwhile investment as we approach 2025?
Broadcom's Key Statistics and Business Overview
- Market Cap: $839 billion
- Dividend Yield: 1.2%
- Wall Street's Projected 5-Year Annualized Earnings Growth: 20.1%
- Forward P/E: 29.1
Broadcom's corporate history is shaped by a strategy of growth through acquisitions, which continues to this day. One of its latest acquisitions is VMWare, a significant player in the virtualization and cloud services arena, announced in late 2023. This acquisition significantly boosted Broadcom's software business.
Broadcom specializes in designing and selling semiconductors, or "chips," and infrastructure software. The VMWare acquisition marked a substantial shift towards software, with the chip segment accounting for 56% of total revenue and the infrastructure software segment accounting for 44% during the third fiscal quarter, which ended on August 4.
Broadcom's Growing AI Business
Broadcom is increasingly relevant in the realm of artificial intelligence (AI). Its AI-related products include custom AI chips and Ethernet networking products used in data centers. Broadcom's AI-related revenue predominantly comes from application-specific integrated circuits (ASICs) designed specifically for large tech companies like Google and Meta Platforms.
In the third fiscal quarter, Broadcom did not disclose the exact AI-related revenue it generated. However, according to CEO Hock Tan's remarks during the earnings call, it was estimated to be around $3.1 billion to $3.2 billion, representing approximately 24% of the total revenue.
Broadcom's Recent Financial Performance
$839 billion
Focusing on Broadcom's most recent quarterly results will provide a more accurate overview of the company's current business conditions, given the significant impact of the VMWare acquisition.
In its third quarter of 2024, Broadcom's revenue surged 47% year-over-year to $13.1 billion, primarily due to the VMWare acquisition. Excluding the contribution from this acquisition, revenue grew by 4% year-over-year. The chip segment's revenue increased by 5% to $7.3 billion, while infrastructure software's revenue soared 200% to $5.8 billion.
1.2%
Broadcom's Upcoming Q4 Results
Broadcom will report its results for the fourth quarter of 2024, ended November 3, after the market close on December 12. Analysts expect adjusted earnings per share (EPS) to jump 26% year-over-year to $1.39 and revenue to surge 52% to $14.1 billion.
20.1%
Broadcom's Reasonable Stock Valuation
Broadcom's stock valuation appears reasonable, trading at 29.1 times the company's projected forward earnings. Given Wall Street's expectations of a 27.6% earnings growth rate in the next fiscal year and an average annual earnings growth rate of 20.1% over the following five years, its stock valuation seems justifiable.
29.1
In conclusion, Broadcom's strong performance, AI focus, and reasonable valuation suggest that it could be a worthwhile investment as we approach 2025. However, investors should consider broadening their exposure to the AI sector, given the rapid pace of evolution and the associated risks.
Investors looking to allocate their money in the tech sector might find Broadcom's finance strategy appealing, given its promising 20.1% projected 5-year annualized earnings growth. With the company's history of growth through acquisitions and its recent focus on AI, investing in Broadcom could potentially yield substantial returns in the future.
As Broadcom's AI-related business continues to grow, with projects in custom AI chips and Ethernet networking, it may be wise for finance-savvy individuals to consider reinvesting some of their money in this burgeoning field, thereby diversifying their portfolio and capitalizing on the potential potential of artificial intelligence.
