Broadcom and Nvidia are two tech giants at the forefront of the artificial intelligence segment, offering enviable returns to shareholders in recent months. Both companies recently announced 10-for-1 stock splits, leading to increased liquidity and stock price rebound.
Broadcom, valued at $731 billion, has shown stellar revenue growth thanks to its expansion into enterprise software, security, and semiconductor solutions. Following the acquisition of VMware, Broadcom’s sales grew by 43% year over year to $12.5 billion, with organic growth at 12%. The company continues to focus on AI products, expecting network sales to grow by 40% and fiscal 2024 revenue of $51 billion, of which $11 billion is AI-based revenue.
Nvidia, on the other hand, has established its dominance in the AI chip market, representing 70-95% of the segment. The company’s sales increased by 262% in the last quarter, with adjusted earnings rising by 461%. Nvidia’s competitive moat and pricing power have resulted in an operating margin of over 69%. The company forecasts sales to double year over year, with adjusted earnings expected to reach $2.71 per share in fiscal 2025.
Despite the steep valuations with AVGO trading at 33.4 times forward earnings and NVDA at 43.6 times, both companies show strong growth potential. Analysts’ consensus ratings for AVGO and NVDA are Strong Buy, with average target prices indicating upside potential. While market sell-offs could pose risks, significant declines may present buying opportunities for investors looking to tap into the growth potential of these tech giants.
Broadcom and Nvidia play crucial roles in supporting the AI industry, with their profitability allowing for continued innovation and market leadership. The investments in AI technology by these companies ensure their relevance in the fast-evolving tech landscape, making them attractive choices for long-term investors seeking exposure to the AI megatrend.
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