Broadcom stock stages a strong recovery as the AI hype accelerates

Broadcom (AVGO) is a large technology company with a market capitalization of over $768 billion, making it the eleventh firm in the world. 

The company provides products in broadband, networking, wireless, storage, and industrial. Its broadband products are mostly found on Apple devices like the iPhone and the iPad. 

Broadcom also offers networking solutions like ethernet switching, fiber optic, and custom touch controllers.

The company has grown over the years through acquisitions. It recently spent over $65 billion to acquire Vmware, a company that provides cloud solutions to companies from around the world.

Broadcom also acquired other companies like Brocade Communications, CA Technologies, and Symantec. These acquisitions have helped it to expand its business to offer services like cybersecurity, workload automation, and payment security.

Broadcom’s business has done well in the past few years. Its annual revenue has jumped from over $22.5 billion in 2019 to over $35 billion in 2023. Its revenue came in at $46 billion in the trailing twelve months. 

Broadcom’s profits have also jumped from over $2.7 billion in 2019 to over $14 billion in the last financial year.

The stock was trading at $164 on Friday while the HypeIndex jumped by 77%. 

Positive hype

• Broadcom has attracted positive hype because of its ongoing growth in the artificial intelligence industry. Its Artificial Intelligence software and products have continued to gain market share, among clients like Amazon and Microsoft. 

• It also saw higher hype as most technology companies jumped, with the Nasdaq 100 index rising for five consecutive days.

• The company’s revenue and profitability growth have continued growing as the technology industry recovers. 

• Broadcom’s revenue rose by 47% in the second quarter to over $13 billion while its adjusted EBITDA rose by 63% to over $8.2 billion.

• It reported a net loss of $1.8 billion because of a one-time non-cash tax provision of $4.5 billion. Excluding that one-off charge, its quarterly profit would have been over $2.5 billion.

• The company also upgraded its forward guidance, with its revenue coming in at over $14 billion, up by 51% from the same period in 2023. 

• Analysts believe that Broadcom’s revenue will continue growing as IT spending increases. They see the annual revenue to come in at $51.5 billion this year and $60 billion in 2025. 

• Broadcom is also beloved for its dividends. It has a dividend yield of about 1.34% and has boosted it in the past 13 consecutive years. It has a conservative dividend yield of 46%, meaning that it has more room to grow its payouts.

• It also has diversified revenue sources, with most of it coming from products and the rest coming from subscriptions and services. 

• Analysts have the average stock target of $192, up from the current $164.

Negative hype

• Broadcom’s acquisitions have led to a big increase in total debt. Its debt has jumped from over $30 billion in 2019 to over $66 billion. A highly indebted company could slash dividends, as we saw with AT&T and General Electric.

• The company’s approach of growing through acquisitions could backfire. Historically, many mergers and acquisitions don’t achieve the desired results. A good example of this is Intel, which acquired Mobileye for $15 billion. Today, Mobileye has a valuation of $8.75 billion.

• The company is quite overvalued, trading at a forward P/E ratio of 32 and a trailing multiple of 34. It also has a forward EV to EBITDA multiple of 25, higher than the median estimate of 13.

Summary on Broadcom stock

Broadcom stock

Turning to the daily chart, we see that the Broadcom stock peaked at $184.70 in June and then retreated to a low of $129. This was a good support level since it coincided with the 200-day Exponential Moving Average (EMA). 

The stock has also formed a W pattern, meaning that it has more upside as bulls target the key resistance point at $184, which is about 12.50% from the current level. A break above that level will point to more upside as the company’s market cap nears $1 trillion. 

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