I started covering Broadcom Inc. (Nasdaq: AVGO) on March 22, 2024, highlighting the company’s strong finances, sales structure updates, and AI prospects that pointed to future outperformance. The stock has since grown over 28%, outperforming the S&P 500 by approximately six times. Following the recent price target hit, I updated my coverage today, maintaining my thesis that Broadcom’s growth expectations are well-founded, with potential for further revenue growth, higher margins, and ongoing dividend growth.
In the second fiscal quarter of 2024, Broadcom reported revenues of $12.49 billion (+43% YoY. AI-related revenues significantly contributed to this growth, reaching $3.1 billion (+280% YoY). In terms of business segments, Semiconductor Solutions and Infrastructure Software showed solid performance, with substantial revenue growth in networking and wireless areas. The integration of VMware has been transformative for Broadcom, simplifying product offerings and operations while reducing costs.
Despite recent margin pressures due to the mix of custom AI accelerators, I believe Broadcom has opportunities to improve margins as product offerings balance out and high-margin AI and networking solutions continue to grow. Market estimates and analyst projections are optimistic, foreseeing strong growth potential for Broadcom fueled by demand for AI solutions. While risks exist, including competition from Nvidia and Google’s potential development of its own ASIC, I maintain my bullish outlook on AVGO’s future growth prospects.
In conclusion, I remain bullish on AVGO’s growth prospects despite risks, believing that recent strength in the stock is just the beginning. With strategic initiatives in networking, AI, and wireless segments, alongside the successful integration of VMware and potential for margin improvement, I see significant upside potential for Broadcom in the next 12 to 16 months. As such, I reiterate my “Buy” rating on the stock. Good luck with your investments!
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