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Can Broadcom (AVGO) Regain Momentum After 6% Dip Post-Stock Split?
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Broadcom (AVGO - Free Report) shares have declined 6.3% since its 10-for-1 split on Jul 15. The dip can be attributed to the cooling of the AI-fueled rally on semiconductor stocks. Investors became apprehensive about the prospects of its AI chips.
Over the same timeframe, shares of AVGO peers NVIDIA (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) have dropped 8.9% and 19.7%, respectively, again attributable to growing investor concern over AI-related spending.
However, AMD’s latest second-quarter 2024 results reflected continued strong demand for AI chips as hyperscalers continued to adopt its Instinct MI300 GPUs and a strong double-digit percentage increase in fourth-gen EPYC CPU sales. AMD’s impressive results drove the share prices of all three companies, providing a much sought-after relief for investors.
AMD shares increased 4.36% to close at $144.48 on Jul 31. NVIDIA jumped 12.81% to close at $117.02, while AVGO shares surged 11.96% to close at $160.68.
On a year-to-date basis, AVGO shares have surged 44%, outperforming the Zacks Computer & Technology sector’s gain of 20.1%. NVIDIA has returned a whopping 136.3% over this timeframe, while AMD shares have dropped 2%.
YTD Performance
Image Source: Zacks Investment Research
AVGO Stock Rides on Strong Portfolio
AVGO is benefiting from the growing demand for AI infrastructure and the strong deployment of Generative AI. Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers.
In the second quarter of fiscal 2024, AVGO doubled shipments of PCI Express switches and NICs in the AI backend fabric. AI sales surged an astounding 280% year over year and are now expected to be more than $11 billion for fiscal 2024.
Broadcom’s Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch. Its VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.
AVGO offers the industry’s first end-to-end PCIe connectivity portfolio, with its new PCIe Gen5/Gen6 retimers in combination with PEX series switches. Its Sian BCM85822 800G PAM-4 DSP PHY solution is suitable for AI workloads at scale.
The high-performance Jericho3-AI fabric for AI networks helps enterprises efficiently handle ever-increasing AI workload demands. Broadcom’s latest 400G PCIe Gen 5.0 Ethernet adapters address the escalating connectivity demands of AI ecosystems.
AVGO’s new adapters are the industry’s first to utilize 5 nm process technology, leading to superior power and thermal efficiency. Paired with Broadcom’s high-radix Ethernet switches, these adapters significantly boost rack density using standard air-cooling technology.
The strong portfolio has prompted Broadcom to raise guidance. For fiscal 2024, AVGO expects revenues of $51 billion (up from the previous guidance of $50 million) and adjusted EBITDA margin of 61% (up from 60%). The rise reflects the growing dominance of AVGO in the AI infrastructure market.
The Zacks Consensus Estimate for fiscal 2024 is pegged at $51.37 billion, suggesting growth of 43.43% year over year.
Expanding Clientele & Partner Base Aids Prospect
Broadcom’s expanding clientele, which includes the likes of Alphabet (GOOGL - Free Report) and Meta Platforms, is noteworthy. Its strong partner base, including Arista Networks, Dell Technologies, Juniper and Supermicro, has been a key catalyst.
Alphabet is one of the large customers of Broadcom’s application-specific integrated chips (ASICs). These chips are designed to support AI and machine learning and make these tasks more efficient. Meta Platforms has also become an important customer as it is using AVGO’s ASICs to develop Metaverse hardware.
Estimate Revisions Showing Downward Trend
The Zacks Consensus Estimate for earnings is pegged at $4.72 per share, down a couple of cents over the past 30 days, indicating 11.58% year-over-year growth.
The consensus estimate for fiscal third-quarter earnings is pegged at $1.07 per share, down a penny over the past 30 days, indicating 1.9% year-over-year growth.
Moreover, AVGO stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 13.06X, higher than its median of 11.16X and the Zacks Computer & Technology sector’s 6.37X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential over the long run.
However, sluggish broadband and server storage end-markets are expected to hurt prospects in the near term. The Growth Style Score of D reflects growing apprehensions over AVGO’s growth prospects, which, along with stretched valuation, makes Broadcom a risky bet.
Image: Bigstock
Can Broadcom (AVGO) Regain Momentum After 6% Dip Post-Stock Split?
Broadcom (AVGO - Free Report) shares have declined 6.3% since its 10-for-1 split on Jul 15. The dip can be attributed to the cooling of the AI-fueled rally on semiconductor stocks. Investors became apprehensive about the prospects of its AI chips.
Over the same timeframe, shares of AVGO peers NVIDIA (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) have dropped 8.9% and 19.7%, respectively, again attributable to growing investor concern over AI-related spending.
However, AMD’s latest second-quarter 2024 results reflected continued strong demand for AI chips as hyperscalers continued to adopt its Instinct MI300 GPUs and a strong double-digit percentage increase in fourth-gen EPYC CPU sales. AMD’s impressive results drove the share prices of all three companies, providing a much sought-after relief for investors.
AMD shares increased 4.36% to close at $144.48 on Jul 31. NVIDIA jumped 12.81% to close at $117.02, while AVGO shares surged 11.96% to close at $160.68.
On a year-to-date basis, AVGO shares have surged 44%, outperforming the Zacks Computer & Technology sector’s gain of 20.1%. NVIDIA has returned a whopping 136.3% over this timeframe, while AMD shares have dropped 2%.
YTD Performance
AVGO Stock Rides on Strong Portfolio
AVGO is benefiting from the growing demand for AI infrastructure and the strong deployment of Generative AI. Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers.
In the second quarter of fiscal 2024, AVGO doubled shipments of PCI Express switches and NICs in the AI backend fabric. AI sales surged an astounding 280% year over year and are now expected to be more than $11 billion for fiscal 2024.
Broadcom’s Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch. Its VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.
AVGO offers the industry’s first end-to-end PCIe connectivity portfolio, with its new PCIe Gen5/Gen6 retimers in combination with PEX series switches. Its Sian BCM85822 800G PAM-4 DSP PHY solution is suitable for AI workloads at scale.
The high-performance Jericho3-AI fabric for AI networks helps enterprises efficiently handle ever-increasing AI workload demands. Broadcom’s latest 400G PCIe Gen 5.0 Ethernet adapters address the escalating connectivity demands of AI ecosystems.
AVGO’s new adapters are the industry’s first to utilize 5 nm process technology, leading to superior power and thermal efficiency. Paired with Broadcom’s high-radix Ethernet switches, these adapters significantly boost rack density using standard air-cooling technology.
The strong portfolio has prompted Broadcom to raise guidance. For fiscal 2024, AVGO expects revenues of $51 billion (up from the previous guidance of $50 million) and adjusted EBITDA margin of 61% (up from 60%). The rise reflects the growing dominance of AVGO in the AI infrastructure market.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
The Zacks Consensus Estimate for fiscal 2024 is pegged at $51.37 billion, suggesting growth of 43.43% year over year.
Expanding Clientele & Partner Base Aids Prospect
Broadcom’s expanding clientele, which includes the likes of Alphabet (GOOGL - Free Report) and Meta Platforms, is noteworthy. Its strong partner base, including Arista Networks, Dell Technologies, Juniper and Supermicro, has been a key catalyst.
Alphabet is one of the large customers of Broadcom’s application-specific integrated chips (ASICs). These chips are designed to support AI and machine learning and make these tasks more efficient. Meta Platforms has also become an important customer as it is using AVGO’s ASICs to develop Metaverse hardware.
Estimate Revisions Showing Downward Trend
The Zacks Consensus Estimate for earnings is pegged at $4.72 per share, down a couple of cents over the past 30 days, indicating 11.58% year-over-year growth.
The consensus estimate for fiscal third-quarter earnings is pegged at $1.07 per share, down a penny over the past 30 days, indicating 1.9% year-over-year growth.
Moreover, AVGO stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 13.06X, higher than its median of 11.16X and the Zacks Computer & Technology sector’s 6.37X.
Price/Sales Ratio (F12M)
Conclusion
Broadcom’s strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential over the long run.
However, sluggish broadband and server storage end-markets are expected to hurt prospects in the near term. The Growth Style Score of D reflects growing apprehensions over AVGO’s growth prospects, which, along with stretched valuation, makes Broadcom a risky bet.
Broadcom currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.