Broadcom (AVGO - Free Report) shares have surged 44.8% year to date, outperforming the Zacks Computer & Technology sector’s gain of 19.4% and the Zacks Electronics- Semiconductors industry’s 22.7%.
AVGO is benefiting from strong demand for its networking products. Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers. The acquisition of VMware has benefited Infrastructure software solutions.
Broadcom’s expanding clientele, which includes the likes of Alphabet (GOOGL - Free Report) and Meta Platforms (META - Free Report) , is noteworthy. Its strong partner base, including Arista Networks, Dell Technologies (DELL - Free Report) , Juniper and Supermicro, has been a key catalyst.
AVGO Outperforms Sector YTD
Image Source: Zacks Investment Research
However, AVGO shares have declined 5.7% since its 10-for-1 split on July 15. The dip can be attributed to the cooling of the AI-fueled rally on semiconductor stocks as investors become apprehensive about the prospects of its AI chips.
So, what to do with the AVGO stock? Should you Buy, Sell or Hold? Let’s dig deeper to find out.
AVGO Stock Rides on Strong Portfolio
AVGO is benefiting from the growing demand for AI infrastructure and the strong deployment of Generative AI. Strong demand for its application-specific integrated chips (ASICs), which are designed to support AI and machine learning and make these tasks more efficient aids top-line growth. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.
In the third quarter of fiscal 2024, Networking revenues of $4 billion soared 43% year over year and contributed 55% to Broadcom’s semiconductor revenues.
AVGO witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.
Custom AI accelerators grew 3.5 times year over year. Tomahawk 5 and Jericho3-AI grew more than four times year over year, while AVGO’s optical lasers and PIN diodes used in optical interconnects grew three-fold in the fiscal third quarter.
PCI Express switches shipment more than doubled. Broadcom has started shipping its industry-leading 5 nanometer, 400 gigabit per second NICs and 800 gigabit per second DSPs.
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. 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. Its Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch.
AVGO’s VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.
VMware Acquisition Aids AVGO’s Prospects
Infrastructure software revenues (44.4% of net revenues) soared 200% year over year to $5.8 billion, including a $3.8 billion contribution from VMware in the fiscal third quarter.
Annualized booking value for VMware solutions jumped 32% year over year to $2.5 billion. VMware Cloud Foundation accounted for 80% of total VMware products booked in the reported quarter.
Broadcom’s Fiscal 2024 AI Revenues to Hit $12 Billion
The strong portfolio is expected to drive AI revenues, which Broadcom now expects to be more than $12 billion for fiscal 2024.
Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.
The Zacks Consensus Estimate for fiscal 2024 is pegged at $51.51 billion, suggesting growth of 43.79% year over year.
AVGO’s Earnings Estimate Shows Downward Trend
The Zacks Consensus Estimate for fourth-quarter fiscal 2024 earnings is pegged at $1.36 per share, down a penny over the past 30 days, indicating 22.52% 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.
AVGO Shares Trading at a Premium
AVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 12.85X, higher than its median of 11.56X and the sector’s 6.82X.
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, the Growth Score of C 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.
Broadcom (AVGO - Free Report) shares have surged 44.8% year to date, outperforming the Zacks Computer & Technology sector’s gain of 19.4% and the Zacks Electronics- Semiconductors industry’s 22.7%.
AVGO is benefiting from strong demand for its networking products. Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers. The acquisition of VMware has benefited Infrastructure software solutions.
Broadcom’s expanding clientele, which includes the likes of Alphabet (GOOGL - Free Report) and Meta Platforms (META - Free Report) , is noteworthy. Its strong partner base, including Arista Networks, Dell Technologies (DELL - Free Report) , Juniper and Supermicro, has been a key catalyst.
AVGO Outperforms Sector YTD
Image Source: Zacks Investment Research
However, AVGO shares have declined 5.7% since its 10-for-1 split on July 15. The dip can be attributed to the cooling of the AI-fueled rally on semiconductor stocks as investors become apprehensive about the prospects of its AI chips.
So, what to do with the AVGO stock? Should you Buy, Sell or Hold? Let’s dig deeper to find out.
AVGO Stock Rides on Strong Portfolio
AVGO is benefiting from the growing demand for AI infrastructure and the strong deployment of Generative AI. Strong demand for its application-specific integrated chips (ASICs), which are designed to support AI and machine learning and make these tasks more efficient aids top-line growth. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.
In the third quarter of fiscal 2024, Networking revenues of $4 billion soared 43% year over year and contributed 55% to Broadcom’s semiconductor revenues.
AVGO witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.
Custom AI accelerators grew 3.5 times year over year. Tomahawk 5 and Jericho3-AI grew more than four times year over year, while AVGO’s optical lasers and PIN diodes used in optical interconnects grew three-fold in the fiscal third quarter.
PCI Express switches shipment more than doubled. Broadcom has started shipping its industry-leading 5 nanometer, 400 gigabit per second NICs and 800 gigabit per second DSPs.
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. 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. Its Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch.
AVGO’s VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.
VMware Acquisition Aids AVGO’s Prospects
Infrastructure software revenues (44.4% of net revenues) soared 200% year over year to $5.8 billion, including a $3.8 billion contribution from VMware in the fiscal third quarter.
Annualized booking value for VMware solutions jumped 32% year over year to $2.5 billion. VMware Cloud Foundation accounted for 80% of total VMware products booked in the reported quarter.
Broadcom’s Fiscal 2024 AI Revenues to Hit $12 Billion
The strong portfolio is expected to drive AI revenues, which Broadcom now expects to be more than $12 billion for fiscal 2024.
Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.
The Zacks Consensus Estimate for fiscal 2024 is pegged at $51.51 billion, suggesting growth of 43.79% year over year.
AVGO’s Earnings Estimate Shows Downward Trend
The Zacks Consensus Estimate for fourth-quarter fiscal 2024 earnings is pegged at $1.36 per share, down a penny over the past 30 days, indicating 22.52% 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.
AVGO Shares Trading at a Premium
AVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 12.85X, higher than its median of 11.56X and the sector’s 6.82X.
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, the Growth Score of C 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.
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