Broadcom (NASDAQ:AVGO) has seen a significant increase in AI-related revenue, expected to make up over a third of total revenue by the end of fiscal year 2024. This rise in revenue has caused the company’s stock price to nearly triple since January 2023. While the intrinsic value of Broadcom is higher than its current market capitalization, some investors may find the upside potential unattractive due to conservative assumptions used in the discounted cash flow model.
Broadcom’s growth in the AI sector is not a surprise, given the company’s broad intellectual property base and its investments in developing new technologies. The company’s profitability metrics highlight its pricing power, which is crucial in the tech industry. Management’s ambition to position AVGO as a major player in the AI field is evident in the pace of product and feature releases.
As a semiconductor stock, Broadcom has been a top performer in the AI-driven rally that started in early 2023. The company’s products are essential for building systems that enable high-performance computing, not just in data centers but also in applications like telecommunications, smartphones, and factory automation. Broadcom’s profitability is comparable to that of Nvidia, a key player in AI technology.
Broadcom’s success in the AI sector is expected to continue, with AI revenue forecasted to reach 35% of total revenue by the end of fiscal 2024. The company’s positioning as a key player in data center AI servers is strong, supported by its investment in developing new products. With a substantial intellectual property portfolio and technological excellence, Broadcom is likely to benefit from major investments in data centers by tech giants like Microsoft, Google, Amazon, and Meta.
In addition to data centers, Broadcom is also well-positioned in the Internet of Things (IoT) industry, which is expected to become a $1.5 trillion market by 2031. The company’s chips have great potential for various IoT applications. Using the discounted cash flow method, Broadcom’s intrinsic value is estimated to be nearly $800 billion, offering potential for growth despite some risks like competition and technological obsolescence.
Overall, there are more reasons to be optimistic about Broadcom’s future, given its strong position in the AI and IoT industries, along with its continued focus on innovation and product development. Management’s commitment to making AVGO a key player in the AI revolution increases the company’s chances of further success.
Article Source
https://seekingalpha.com/article/4701801-broadcom-an-essential-company-for-ai-investors
