Unlocking the Future of Semiconductor Giants: A Closer Look at Broadcom’s Prospects
A Stellar Performance
Broadcom, a leading semiconductor company, has been on a remarkable journey over the past three years, with its shares surging an impressive 240%. This outpaces the 27% gains clocked by the PHLX Semiconductor Sector index during the same period. As investors ponder whether this chipmaker has the momentum to sustain its rally, we’ll examine the catalysts driving its growth and assess its valuation.
Record-Breaking Revenue
Broadcom recently announced its fourth-quarter fiscal 2024 results, boasting a record $51.6 billion in annual revenue, a 44% increase from the previous year. Organic revenue growth stood at 9%, excluding the contribution from VMware, which was acquired in November last year. The company’s fiscal 2024 non-GAAP earnings came in at $4.87 per share, a 15% improvement from the previous year.
Guidance and Growth Projections
Broadcom’s guidance for the first quarter of fiscal 2025 suggests a 22% revenue increase over the year-ago period, with analysts expecting a 19% top-line growth in the current fiscal year to $61.1 billion. Moreover, the company’s revenue is projected to clock 15% growth over the next couple of fiscal years.
The AI Revolution
The driving force behind Broadcom’s growth is the surging demand for its artificial intelligence (AI) chips, which are being deployed in data centers for AI model training and inference, as well as to enable faster connectivity between servers for tackling AI workloads. The company’s AI revenue shot up an incredible 220% in fiscal 2024 to $12.2 billion, with a forecasted 65% year-over-year increase in revenue from AI chip sales to $3.8 billion in the current quarter.
Expanding Customer Base and Market Share
Two additional hyperscale customers have selected Broadcom’s custom AI processors for deployment, expanding its customer base and putting it in a stronger position to capitalize on a massive growth opportunity. The company’s management estimates that the serviceable addressable market for its custom AI accelerators and networking chips could range between $60 billion and $90 billion by fiscal 2027.
Attractive Valuation
Broadcom is trading at an attractive 35 times forward earnings, comparable to the Nasdaq-100 index. Its price/earnings-to-growth ratio (PEG ratio) is just 0.63, indicating that the stock is cheap with respect to its estimated earnings growth over the next five years.
A Compelling Investment Opportunity
With its strong growth prospects, expanding customer base, and attractive valuation, Broadcom appears well-positioned to sustain its rally. Investors looking to add an AI stock to their portfolios can consider buying Broadcom, which seems poised to deliver strong gains over the next three years.
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