Broadcom (NASDAQ: AVGO) has seen a significant increase in its shares this year, rising by over 60%. The company recently announced a 10-for-1 stock split, scheduled for July 2024. Led by CEO Hock Tan, Broadcom has grown through a series of acquisitions, expanding its presence in the chip design and enterprise software industries.
One of Broadcom’s significant acquisitions was VMware, a leading cloud management software provider. This has positioned Broadcom to benefit from the AI infrastructure boom, although Nvidia remains a dominant player in the AI training data center market. In its most recent quarter, Broadcom reported 6% year-over-year growth in semiconductor sales, demonstrating its market share gains.
With a focus on building profitable relationships with VMware, Broadcom is working to improve the profitability of its software segment, which now contributes around 40% of total revenue. While VMware is becoming more profitable, Broadcom’s total adjusted EBITDA margins were 61% last quarter. The company is aiming to improve its free cash flow margins through the integration of VMware.
Despite its strong performance, Broadcom is trading at a reasonable valuation, with a free cash flow multiple of 44. However, the company has taken on significant debt to acquire VMware, which currently stands at $74 billion. Management plans to pay down the debt at a rate of approximately $2 billion per quarter.
Investors interested in Broadcom should consider the company’s growth prospects in the AI semiconductor market and its ability to unlock value from its software segment. While the stock has seen a significant increase this year, there may still be opportunities for further growth. Keeping track of VMware’s progress and debt reduction will be key factors to watch in 2024.
Investors should also consider other investment opportunities, as the Motley Fool’s Stock Advisor service has identified 10 stocks with potential for significant returns. While Broadcom was not included in this list, past recommendations like Nvidia have provided substantial returns. Stock Advisor offers guidance on building a successful portfolio, with regular updates and new stock recommendations each month.
As of now, Nicolas Rossolillo and his clients have positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Nvidia, and recommends Broadcom. It’s important to conduct thorough research and consider all factors before making investment decisions.
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https://finance.yahoo.com/news/55-far-too-buy-broadcom-220000847.html