Broadcom AVGO shares have appreciated 81.1% in the past 12 months, outperforming both the Zacks Computer & Technology sector and the Zacks Electronics Semiconductors industry. Over the same timeframe, the sector and industry have gained 37.1% and 63.1%, respectively.
AVGO is benefiting from strong demand for its networking products. The acquisition of VMware has benefited Infrastructure software solutions. Broadcom’s strong partner base, including Arista Networks, Dell Technologies DELL, Juniper and Supermicro, has been a key catalyst.
Strong demand for Broadcom’s application-specific integrated chips (ASICs), designed to support AI and machine learning and make these tasks more efficient, aids top-line growth. Alphabet GOOGL and Meta Platforms META are notable users of Broadcom’s ASICs.
AVGO Outperforms Sector in a Year
Image Source: Zacks Investment Research
AVGO stock is showing a bullish trend as it is trading above the 50-day and 200-day moving averages.
AVGO Shares Trade Above 50-Day & 200-Day SMA
Image Source: Zacks Investment Research
Broadcom’s Fiscal 2024 AI Revenues to Hit $12 Billion
Broadcom’s strong portfolio is expected to drive AI revenues, which AVGO now expects to be more than $12 billion for fiscal 2024.
Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.
Broadcom is benefiting from an innovative portfolio. AVGO offers the industry’s first end-to-end PCIe connectivity portfolio, with its new PCIe Gen5/Gen6 retimers in combination with PEX series switches. The high-performance Jericho3-AI fabric for AI networks helps enterprises efficiently handle ever-increasing AI workload demands.
Broadcom’s latest 400G PCIe Gen 5.0 Ethernet adapters address the escalating connectivity demands of AI ecosystems. Its Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch.
AVGO’s VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.
AVGO’s private cloud platform, VMware Cloud Foundation, is helping enterprises in their digital journey with the latest VMware Cloud Foundation Advanced Services.
AI Focus to Boost Broadcom’s Prospects
In the third quarter of fiscal 2024, AVGO witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.
Custom AI accelerators grew 3.5 times year over year. Tomahawk 5 and Jericho3-AI grew more than four times year over year, while AVGO’s optical lasers and PIN diodes used in optical interconnects grew three-fold in the fiscal third quarter.
PCI Express switches shipment more than doubled. Broadcom has started shipping its industry-leading 5 nanometer, 400 gigabit per second NICs and 800 gigabit per second DSPs.
Broadcom recently expanded its VeloCloud product portfolio as well as a new partner program.
Earnings Estimate Revision Trend Positive
The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at $4.82 per share, up a penny over the past 60 days, indicating 13.95% year-over-year growth.
The consensus estimate for fiscal 2024 revenues is pegged at $51.58 billion, indicating 44.01% growth over the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at $1.39 per share, up by 3 cents over the past 60 days, indicating 25.23% year-over-year growth.
The consensus estimates for fiscal fourth-quarter 2024 revenues is pegged at $14.06 billion, indicating 51.29% growth over the year-ago quarter’s reported figure.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
AVGO’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.28%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
AVGO Shares Trading at a Premium
AVGO stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 13.63X, higher than its median of 11.88X and the sector’s 6.31X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
The Growth Score of C reflects apprehensions over AVGO’s prospects, which, along with stretched valuation, makes Broadcom a risky bet.
However, Broadcom’s strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential. We believe these factors justify the premium valuation.
Broadcom currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
