The Nasdaq’s Record-Breaking Streak: What’s Fueling the Rally?
The Nasdaq Composite has been on a tear, notching over 110 new all-time highs in 2024. This remarkable run has been driven by a combination of factors, including the accelerating adoption of artificial intelligence, waning inflation, recent interest rate cuts, and the U.S. election results.
A Bull Market with Legs
Historically, bull markets have averaged over five years in duration. With the current upswing kicking off in October 2022, we’re only two years in, suggesting there’s still plenty of room for growth. Furthermore, the Nasdaq has typically seen an additional 19% gain in the year following a 30%+ increase, boding well for 2025.
The Renaissance of Stock Splits
Investors are taking notice of companies that have split their shares, a sign of strong sales and earnings growth. Broadcom, a leader in semiconductor, software, and security products, has seen its stock soar 98% this year and 2,100% over the past decade. Its recent 10-for-1 stock split is a testament to its impressive performance.
Broadcom’s Impressive Reach
Despite its recent rally, there’s reason to believe Broadcom’s growth will continue. The company’s products are essential components in data centers, where AI processing takes place. With the rapid adoption of AI, Broadcom is poised to benefit from the scramble to upgrade data centers. Its acquisition of VMWare, a leader in software-defined wide area network (SD-WAN), further solidifies its position.
Compelling Results
Broadcom’s fiscal fourth-quarter results were impressive, with revenue jumping 51% year over year and adjusted earnings per share climbing 31%. Management attributed the growth to surging demand for AI, with AI networking revenue soaring 158% year over year.
Growth Poised to Accelerate
Looking ahead, management is forecasting AI revenue of between $60 billion and $90 billion by fiscal 2027, representing growth of between 391% and 638% over the next three years. Wall Street is equally bullish, with analysts’ average price target suggesting potential upside of 6%.
A Premium Valuation Worth Considering
While Broadcom’s valuation may seem steep at 35 times forward earnings, its outperformance over the past five years warrants a closer look. With its unique positioning in the AI space and impressive growth prospects, Broadcom is an attractive option for investors.
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