Broadcom Inc. (NASDAQ:AVGO) has seen a 90% increase in its share price over the past year, driven by demand for data servers and strong financial results. Despite lofty projections and the boost from AI, some analysts believe that Broadcom stock is currently overpriced. The company has performed well, but its outlook does not justify its valuation compared to its peers. As a result, coverage of Broadcom has been initiated with a sell rating.
In its latest earnings report, Broadcom reported a 5.8% year-over-year growth in semiconductor solutions revenue, with network revenue growing by 44%. Infrastructure Software revenue also saw a significant increase, driven by a 280% year-over-year growth in AI revenue. The company expects revenue to reach $51 billion in 2024, up 42% year-over-year, with EBITDA projected to be around $30 billion.
While the rise of AI revenue has contributed to Broadcom’s current valuation, some argue that the growth is somewhat misleading as AI revenue was minimal prior to 2022. The company’s dividend growth has been attractive, but its valuation remains high compared to industry peers. AVGO is seen as overvalued, particularly when compared to companies like Nvidia and AMD. Even with optimistic assumptions in a DCF valuation, Broadcom is still considered overpriced.
Despite its positioning as an AI beneficiary and the success of the VMware acquisition, the current price of Broadcom does not accurately reflect its true value. Market enthusiasm may eventually be replaced by a correction in the stock price. While it may take time for the market to adjust, some analysts believe that Broadcom’s valuation is out of touch with reality and that a correction is likely in the future.
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https://seekingalpha.com/article/4701503-broadcom-fools-gold-not-the-next-nvidia