Broadcom and Nvidia are leading the way in the artificial intelligence industry, with Broadcom’s stock up 60% so far in 2024 and Nvidia’s up over 170%. Broadcom, under CEO Hock Tan, has grown through multiple acquisitions, including the purchase of VMware in 2023. This has positioned the company well to benefit from the AI infrastructure boom, with a 280% increase in AI-specific chip sales reported in the most recent quarter.
However, the acquisition of VMware has raised questions, as Broadcom looks to integrate the software company into its business. Despite concerns about debt from the acquisition, Broadcom’s total adjusted EBITDA was up 61% last quarter, and the company is aiming to pay down debt at a rate of $2 billion per quarter. Investors should keep an eye on VMware’s progress and how it impacts Broadcom’s free cash flow margins as the year progresses.
Despite the impressive growth and prospects for Broadcom, investors should also be cautious due to the company’s large debt load and the need for successful integration of VMware into its business. With Broadcom trading at a reasonable free cash flow multiple and the potential for continued growth in AI semiconductors, there may still be opportunities for investors to benefit from the company’s success in the coming years.
Disclosure: Nicolas Rossolillo and clients have positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Nvidia and recommends Broadcom. The Motley Fool has a disclosure policy.
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https://www.fool.com/investing/2024/06/23/up-55-so-far-this-year-is-it-too-late-to-buy-broad/