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Broadcom today

$224.80 +44.14 (+24.43%)

(As of 12/13/2024 ET)

52 week range

$104.15

▼

$228.70

Dividend yield

0.94%

P/E ratio

195.31

Price target

$220.33

Broadcom Nasdaq:AFGO About to turn seven wonders into eight. Mag Seven is the largest US stock by market cap, of all the tech names, and the only US stock with a market cap of $1 trillion. Broadcom was about 17% short of that target going into its first-quarter 2025 earnings report; Then, the stock price rally went off the charts, rising nearly 17% to hit a critical level and set a new all-time high. With the results driven by fundamental strengths, including high demand for AI-related products and a multi-generational AI upgrade cycle engine, Broadcom stock is likely to continue to move higher, enter the trillion-dollar market cap region, and turn Mag Seven into eight.

Broadcom: A smart play on artificial intelligence

Broadcom reported mixed results. However, expectations have been raised, and revenue growth has accelerated, surpassing 50%, so the expected top number is much stronger than it may seem. The company’s growth was due to strength in both sectors, led by a 196% increase in infrastructure software. Its software products are essential for building and scaling artificial intelligence. It’s used by leading hyperscalers and the companies that use it, including Apple Nasdaq: AppleGoogle Nasdaq:GoogleAnd meta platforms Nasdaq: Meta. The semiconductor sector, the largest business sector, achieved a growth of 12%.

Margin is another area of ​​strength. Broadcom maintained its margin and generated better-than-expected cash flows despite the impact of the restructuring, allowing the board to significantly increase its dividend. Cash flow was $5.604 billion, up from the prior year, with $5.482 billion of free cash flow or about 39% of revenue. The net result is adjusted earnings of $1.42, up 28% year over year and $0.03 better than the reported MarketBeat consensus.

The company’s guidance is also good. It issued strong guidance for the first quarter, forecasting 22% year-on-year growth, on top of the 34% recorded last year and a wider margin. EBITDA margin is expected to expand sequentially by 100 basis points and 600 basis points compared to the prior year, resulting in increased cash flow and free cash flow gains. The guidance is also higher than consensus expectations, prompting analysts to raise their results and stock price estimates.

Analysts raise targets for AVGO stock, pointing to $250 level

Analyst response to Broadcom’s results was strong, with MarketBeat tracking more than a dozen analysts raising their price targets on their shares. All of the new targets are above $200, and most, about 60%, put the market in the $240 to $250 range. The takeaway from the chatter is that Broadcom has increased confidence in the outlook for existing businesses and impressed the market with long-term guidance for its custom AI business. The company expects the value of custom business to reach $90 billion by 2027, which is equivalent to 150% of 2024 business, and it may be cautious in its estimates. With this in place and the business strong, analysts are likely to continue raising targets as 2025 progresses.

Broadcom’s balance sheet and return on capital will also push up the stock price over time. Despite the acquisitions, the company maintains a strong balance sheet and has increased shareholders’ equity significantly in F2024. Highlights include assets that more than doubled on acquired intangible assets and goodwill related to the VMWare acquisition, which was only partially offset by increased liabilities. Equity rose nearly 3x compared to the previous year, leaving its long-term debt leverage at nearly 1x and the business healthy. Regarding capital return, the company increased its dividend by 11% for 2025, about 35% of expected profits, and will likely increase it by double digits again at the end of the year.

Broadcom’s stock price is off the charts

Broadcom’s stock price rose more than 15% on the news and analyst response, rising to a new all-time high. The move has put the market near the $212 level, where it may face some volatility. At this level, the market is at all-time highs and a large gap has been created, which could lead to profit taking. It is possible that the market will fall to the same closing level as the previous day in this scenario before moving up to make new highs.

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