Broadcom, a hot semiconductor stock, has decided to follow in Nvidia’s footsteps by splitting its shares in a 10-to-1 ratio. This move, set to take effect on July 15, has garnered attention from investors. While the stock has already risen over 60% in 2024, the split may open doors for more investors to afford shares who previously couldn’t due to high prices.
One of the key factors driving Broadcom’s growth is its strong revenue growth, particularly in the field of AI. The company’s networking technology plays a crucial role in enabling communication within server farms that power AI applications, contributing to its significant revenue growth over the past year. Broadcom has raised its 2024 revenue expectations to $51 billion, up from $36 billion a year earlier.
In addition to AI, Broadcom’s recent acquisition of VMware has proven to be a profitable move. The company’s infrastructure software revenue has accelerated, with many enterprises adopting VMware’s software stack to build their own private clouds. Broadcom CEO Hock Tan highlighted the role of both AI and VMware in driving the company’s growth in the recent earnings report.
Despite its success, investors should keep an eye on Broadcom’s balance sheet, as the company has significant debt resulting from its history of acquiring competitors. With a debt-to-equity ratio of 1.5, Broadcom’s leverage could pose a risk if revenues fail to meet expectations. Comparatively, Nvidia has a much healthier debt-to-equity ratio of 0.5, emphasizing the importance of managing debt in an uncertain market.
While Broadcom’s debt level may be a concern, the company remains a strong contender in the AI market. Investors should closely monitor how Broadcom plans to address its debt going forward. As always, it’s important to conduct thorough research and consider all factors before making investment decisions in the semiconductor sector.
Disclosure: Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia and Broadcom and has a disclosure policy.
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