Tag: Broadcom Inc. (AVGO)

AI Surge Fuels Nvidia & Broadcom Stocks: Buy Now or Wait for a Dip?

Posted on by The INO.com Team

Artificial intelligence (AI) has been a red-hot investment theme over the past two years, with its ability to learn and improve without much human input, making it valuable across nearly every industry. PwC predicts that AI could boost the global economy by $15.7 trillion by 2030.

With AI adoption on the rise, chip stocks like NVIDIA Corporation (NVDA) and Broadcom Inc. (AVGO) are well-positioned for long-term growth. But with these stocks hovering near their 52-week highs, is now the right time to buy, or should you wait for a potential dip? Let’s find out.

Stock to Buy: NVIDIA Corporation (NVDA)

Nvidia has been one of the most talked-about stocks this year, and for good reason. As one of the hottest large-cap stocks this year, the Wall Street darling is up nearly 14% in just the past week and more than 190% over the past year. It is trading just 5.6% below its 52-week high of $140.76. Much of this excitement is fueled by the company’s new Blackwell platform, which has both investors and customers eagerly watching its next moves.

Several analysts remain bullish on NVDA, and it’s easy to see why. KeyBanc recently raised its fiscal 2025 sales forecast to $130.60 billion, driven in part by Nvidia’s new AI chips, which are expected to contribute around $7 billion to fourth-quarter revenues.

Additionally, the company’s collaboration with Foxconn to build Taiwan’s largest supercomputer, along with a massive manufacturing facility in Mexico, underscores Nvidia’s commitment to scaling its operations while also minimizing supply chain risks.

In the second quarter that ended July 28, 2024, Nvidia’s revenue increased 122% year-over-year to $30.04 billion, and 15% from the first quarter. This robust growth exceeded analysts’ expectations, who had forecasted around $28.75 billion. Its AI-driven Data Center Group generated $26.30 billion in revenue, resulting in a 16% sequential gain and a triple-digit growth of 154% over the same period last year.

On the bottom line, its operating income surged 174% from the year-ago value to $18.64 billion. NVDA’s non-GAAP net income amounted to $16.95 billion or $0.68 per share, compared to $6.74 billion or $0.27 per share in the previous year’s quarter, respectively. The chipmaker is now gearing up for new AI hardware releases based on the Blackwell architecture, which could boost demand in the coming years.

Moreover, it forecasted a revenue of $32.50 billion, plus or minus 2%, for its fiscal third quarter, representing an 81.6% growth from the year-ago quarter. However, this slightly falls short of the analysts’ estimates of $32.90 billion. Nvidia’s business continues to thrive and will likely report another blowout quarter next month.

In addition to its strong financials, the company has approved a massive $50 billion share buyback program, which could boost investor returns over time. This, combined with surging demand for AI platforms and upcoming product launches, makes NVDA a stock worth considering for long-term investors looking to buy on any significant dip.

Stock to Hold: Broadcom Inc. (AVGO)

Thanks to the escalating demand for its AI products, Broadcom delivered a better-than-expected earnings report with double-digit top-line growth, comfortably surpassing Wall Street’s estimates. The demand for AVGO’s products, essential for building Data Centers, has soared due to the extensive adoption of AI-powered applications, particularly within the enterprise sector.

The semiconductor division, which makes up 56% of its total revenue, has been the company’s primary growth driver, while the remaining 44% falls into the industrial software segment. To keep pace with the surge in demand for AI technology, Broadcom is investing heavily in its product lineup, aiming to solidify its foothold in the booming AI chip market.

This frenzy for AI chips, driven by hefty investments in AI models, has significantly boosted the company’s topline growth. For the third quarter that ended on August 4, 2024, AVGO’s net revenue increased 47% year-over-year to $13.07 billion, with triple-digit revenue growth in the Infrastructure Software segment to $5.79 billion. Its revenues came in slightly above the analysts’ estimate of $12.96 billion.

AVGO’s gross margin grew 7.5% from the year-ago value to $8.36 billion, while its non-GAAP operating income came in at $7.95 billion, up 11.2% year-over-year. On top of it, the company’s non-GAAP net income came in at $6.12 billion or $1.24 per share, up 33.2% and 18.1% year-over-year, respectively. Also, its adjusted EBITDA increased 41.7% from the prior year’s quarter to $8.22 billion.

Looking ahead, management anticipates the revenue for the fourth quarter to be around $14 billion (in line with analysts’ consensus estimates) and adjusted EBITDA to be approximately 64% of revenue, translating to about $9 billion. For the full year, Broadcom projects revenue of $51.50 billion, up from its previous forecast of $51 billion.

Moreover, its robust free cash flow of $4.79 billion enabled it to pay a quarterly dividend of $0.53 per share on September 19, 2024. With 13 consecutive years of dividend growth, AVGO stands out among semiconductor-focused enterprises due to its consistent and significant cash flow distributions to shareholders.

The company pays an annual dividend of $2.12 per share, yielding 1.21% on the current share price, with a four-year dividend yield of 2.50%. Over the past three and five years, its dividend payouts have grown at CAGRs of 13.5% and 14.7%, respectively.

When it comes to price performance, shares of AVGO have soared over 110% over the past year and returned nearly 62% year-to-date. The stock is trading just 2.4% below its 52-week high of $185.16. With accelerating revenue, robust profit margins, and significant exposure to the AI chip industry, AVGO has garnered immense investor interest. However, the stock’s current valuation might burn a hole in one’s pocket.

In terms of forward non-GAAP P/E, AVGO is trading at 36.11x, 50.8% higher than the industry average of 23.94x. Its forward EV/EBITDA and Price/Cash Flow of 27.77x and 37.69x are 92.6% and 66.7% higher than the respective industry averages of 14.42x and 22.61x. Furthermore, the stock’s forward Price/Sales multiple of 15.85 compares with the industry average of 2.85.

Hence, given the lofty valuation levels, it may be prudent for investors to await a more opportune entry point into the stock.

Broadcom (AVGO) and Micron (MU): Top Picks for Data Center Investment Surge

Posted on by The INO.com Team

The expected record spending on infrastructure by cloud computing leaders such as Microsoft Corporation (MSFT) and Amazon.com, Inc. (AMZN) this year highlights the escalating investments in artificial intelligence (AI) data centers, a trend likely to benefit chipmakers significantly.

Bank of America (BofA) analysts forecast that cloud service provider capital expenditures will reach $121 billion in the second half of 2024, bringing the total to a record $227 billion in 2024. This figure marks a 39% increase compared to the previous year.

c, Microsoft, and Meta Platforms, Inc. (META) are predicted to more than double their spending compared to 2020 levels, while Oracle Corporation (ORCL) is expected to increase its capital expenditure nearly sixfold. The proportion of this spending allocated to data centers is already around 55% and is anticipated to rise further, reflecting the critical role of data centers in supporting advanced AI applications.

While NVIDIA Corporation (NVDA) stands out as the dominant player in the AI GPU market, BofA analysts have highlighted Broadcom Inc. (AVGO) and Micron Technology, Inc. (MU) as compelling alternatives for investors seeking to benefit from this trend.

In this article, we will delve into why Broadcom and Micron are well-positioned to capitalize on growing investments by cloud service providers in AI data centers, evaluate their financial health and recent performance, and explore the potential headwinds and tailwinds they may encounter in the near future.

Broadcom Inc. (AVGO)

Valued at a $732.45 billion market cap, Broadcom Inc. (AVGO) is a global tech leader that designs, develops, and supplies semiconductor and infrastructure software solutions. Broadcom’s extensive portfolio of semiconductor solutions, including networking chips, storage adapters, and advanced optical components, makes it a critical supplier for data centers.

Moreover, Broadcom’s leadership in networking solutions, exemplified by its Tomahawk and Trident series of Ethernet switches, positions it as a critical beneficiary of increased AI data center spending.

In May, AVGO revolutionized the data center ecosystem with its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters. The latest products provide an improved, open, standards-based Ethernet NIC and switching solution to address connectivity bottlenecks caused by the rapid growth in XPU bandwidth and cluster sizes in AI data centers.

Further, Broadcom’s strategic acquisitions, such as the recent purchase of VMware, Inc., enhance its data center and cloud computing capabilities. With this acquisition, AVGO will bring together its engineering-first, innovation-centric teams as it takes another significant step forward in building the world’s leading infrastructure technology company. 

Broadcom’s solid second-quarter performance was primarily driven by AI demand and VMware. AVGO’s net revenue increased 43% year-over-year to $12.49 billion in the quarter that ended May 5, 2024. That exceeded the consensus revenue estimate of $12.01 billion. Revenue from its AI products hit a record of $3.10 billion for the quarter.

AVGO reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds. Its gross margin rose 27.2% year-over-year to $7.78 billion. Its non-GAAP operating income grew 32% from the year-ago value to $7.15 billion. Its adjusted EBITDA was $7.43 billion, up 30.6% year-over-year.

Further, the company’s non-GAAP net income was $5.39 billion or $10.96 per share, up 20.2% and 6.2% from the prior year’s quarter, respectively. Cash from operations of $4.58 billion for the quarter, less capital expenditures of $132 million, resulted in free cash flow of $4.45 billion, or 36% of revenue.

When it posted solid earnings for its second quarter, Broadcom announced a ten-for-one stock split, which took effect on July 12, making stock ownership more affordable and accessible to investors.

Moreover, AVGO raised its fiscal year 2024 guidance. The tech company expects full-year revenue of nearly $51 billion. Broadcom anticipates $10 billion in revenue from chips related to AI this year. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.9% year-over-year to $12.95 billion. The consensus EPS estimate of $1.20 for the ongoing quarter indicates a 14% year-over-year increase. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

In addition, the company’s revenue and EPS for the fiscal year ending October 2024 are expected to increase 43.6% and 12.4% from the previous year to $51.44 billion and $4.75, respectively.

AVGO’s shares have gained more than 29% over the past six months and around 74% over the past year. Moreover, the stock is up nearly 40% year-to-date.

Micron Technology, Inc. (MU)

Another chipmaker that is well-poised to benefit from significant data center spending among enterprises is Micron Technology, Inc. (MU). With a $126.70 billion market cap, MU provides cutting-edge memory and storage products globally. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Embedded Business Unit; and Storage Business Unit.

Micron’s role as a leading provider of DRAM and NAND flash memory positions it to capitalize on the surging demand for high-performance memory solutions. The need for advanced memory products grows as data centers expand to support AI and machine learning workloads. The company’s innovation in memory technologies, such as the HBM2E, aligns well with the performance requirements of modern data centers.

Also, recently, MU announced sampling its next-generation GDDR7 graphics memory with the industry’s highest bit density. The best-in-class capabilities of Micro GDDR7 will optimize AI, gaming, and high-performance computing workloads. Notably, Micron reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.

Further, MU’s strategic partnerships with leading tech companies like Nvidia and Intel Corporation (INTC) position the chipmaker at the forefront of technology advancements. In February, Micron started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs, expected to begin shipping in the second quarter.

For the third quarter, which ended May 30, 2024, MU posted revenue of $6.81 billion, surpassing analysts’ expectations of $6.67 billion. That compared to $5.82 billion in the prior quarter and $3.75 billion for the same period last year. Moreover, AI demand drove 50% sequential data center revenue growth and record-high data center revenue mix.

MU’s non-GAAP gross margin was $1.92 billion, versus $1.16 million in the prior quarter and negative $603 million for the previous year’s quarter. Its non-GAAP operating income came in at $941 million, compared to $204 million in the prior quarter and negative $1.47 billion for the same period in 2023.

Additionally, the chip company reported non-GAAP net income and earnings per share of $702 million and $0.62 for the third quarter, compared to non-GAAP net loss and loss per share of $1.57 billion and $1.43 a year ago, respectively. Its EPS beat the consensus estimate of $0.53. Its adjusted free cash flow was $425 million during the quarter, compared to a negative $1.36 billion in the prior year’s quarter.

For the fourth quarter of fiscal 2024, Micron expects non-GAAP revenue of $7.60 million ± $200 million, and its gross margin is anticipated to be 34.5% ± 1%. Also, the company expects its non-GAAP earnings per share to be $1.08 ± 0.08.

Analysts expect AVGO’s revenue for the fourth quarter (ending August 2024) to increase 91.4% year-over-year to $7.68 billion. The company is expected to report an EPS of $1.14 for the current quarter, compared to a loss per share of $1.07 in the prior year’s quarter. Further, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

MU’s shares have surged over 30% over the past six months and approximately 75% over the past year.

Bottom Line

The substantial surge in capital expenditures by cloud computing giants like Microsoft, Amazon, and Alphabet highlights the importance of AI and data centers in the tech industry’s landscape. Broadcom and Micron emerge as two of the most promising chip stocks for investors seeking to benefit from this trend. Both companies offer solid financial health, significant market positions, and exposure to the expanding data center and AI markets.

While Broadcom’s diverse semiconductor solutions and Micron’s leadership in memory technology make them attractive investment opportunities, investors must remain mindful of potential headwinds, including market competition and geopolitical risks. By evaluating these factors and understanding the growth potential of these companies, investors can make informed decisions in the rapidly evolving technology sector.

Why Broadcom’s (AVGO) 10-for-1 Stock Split Could Attract a New Wave of Investors

Posted on by The INO.com Team

Broadcom Inc. (AVGO), a prominent player in the semiconductor industry, announced a 10-for-1 forward stock split set to take effect on July 15, 2024, taking advantage of a rally in its shares this year. This decision comes on the heels of an outstanding second-quarter performance, underscoring Broadcom’s strategic positioning amid the burgeoning artificial intelligence (AI) revolution.

Understanding Stock Split Mechanics and Strategic Implications for Broadcom

A stock split involves dividing each existing share into multiple shares, effectively lowering the share price proportionally while maintaining the company’s total market capitalization. In AVGO’s case, each shareholder will receive nine additional shares for every one share held, resulting in a tenfold increase in the number of outstanding shares.

The primary objective of a stock split is to make shares more affordable and accessible to a wide range of retail investors by reducing the nominal share price. Given Broadcom’s share price surpassing $1,800 recently, the split aims to address perceived affordability barriers that may have deterred investors.

The increased accessibility can broaden AVGO’s investor base, potentially stimulating demand for its shares. Consequently, a higher number of outstanding shares resulting from the stock split typically leads to higher trading volumes. This enhanced liquidity can benefit both existing and new investors, allowing for easier entry and exit from positions.

Comparison with NVIDIA’s Recent Similar Move

Broadcom’s stock split mirrors a similar move by NVIDIA Corporation (NVDA), its rival in the AI hardware market. With more individual investors gaining access to Nvidia’s shares post-split, which came into effect at the close of trading on June 7, increased trading activity and demand were observed, potentially driving share prices higher.

NVIDIA’s stock is trading above its 50-day and 200-day moving averages of $99.28 and $68.61, respectively. NVDA’s successful split this month was preceded by significant market gains, highlighting the strategic timing of Broadcom’s decision to capitalize on investor sentiment surrounding the AI and semiconductor sectors.

Historically, stock splits are viewed as a bullish signal. According to data from BofA research, total returns for companies announcing stock splits are about 25% in the 12 months after a stock split compared to 12% gains for the S&P 500 index.

Broadcom’s Unprecedented Growth Amid the AI Boom

With a $839.05 billion market cap, AVGO is a technology leader that develops and supplies semiconductor and infrastructure software solutions. The company manufactures sophisticated networking chips for handling vast amounts of data used by AI applications such as OpenAI’s ChatGPT, positioning it as one of the beneficiaries of increased enterprise investments in the boom.

According to Grand View Research, the global AI market is projected to reach $1.81 trillion by 2030, growing at a CAGR of 36.6% during the forecast period (2024-2030). As AI continues to revolutionize industry verticals, including automotive, healthcare, retail, finance, and manufacturing, chipmakers like Broadcom are at the forefront, providing the essential chips that power AI applications.

Broadcom’s second-quarter results were primarily driven by AI demand and VMware. For the quarter that ended May 5, 2024, AVGO’s net revenue increased 43% year-over-year to $12.49 billion. Its revenue surpassed the consensus estimate of $12.01 billion. Revenue from its AI products was a record $3.10 billion during the quarter. Broadcom reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds.

AVGO’s gross margin grew 27.2% from the year-ago value to $7.78 billion. Its non-GAAP operating income rose 32% year-over-year to $7.15 billion. Furthermore, the company’s non-GAAP net income came in at $5.39 billion or $10.96 per share, up 20.2% and 6.2% year-over-year, respectively. Its EPS exceeded the analysts’ expectations of $10.84.

Also, the company’s adjusted EBITDA grew 30.6% from the prior year’s quarter to $7.43 billion. It reported a free cash flow, excluding restructuring and integration, of $4.45 billion, up 18% year-over-year. As of May 5, 2024, AVGO’s cash and cash equivalents were $9.81 billion.

After an outstanding financial performance, Broadcom raised its fiscal year 2024 guidance. The company expects full-year revenue of nearly $51 billion. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Favorable Analyst Estimates

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.6% year-over-year to $12.92 billion. The consensus EPS estimate of $12.11 for the current quarter indicates a 14.9% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending October 2024, Street expects Broadcom’s revenue and EPS to grow 43.4% and 13% year-over-year to $43.37 billion and $47.74, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 15.3% and 25.6% from the previous year to $59.22 billion and $59.95, respectively.

Bottom Line

As AI continues to revolutionize several sectors, chipmakers such as Broadcom are at the forefront, offering essential semiconductor and infrastructure software solutions powering this technology. Driven by robust AI demand and VMware, AVGO reported solid second-quarter performance, exceeding analysts’ estimates for revenue and earnings.

The management expressed confidence in the company’s growth prospects by raising the company’s fiscal year 2024 guidance for revenue to $51 billion and adjusted EBITDA to 61% of revenue. Moreover, AVGO’s strong financial health enabled it to approve a quarterly dividend of $5.25 per share, payable on June 28, 2024.

The company pays an annual dividend of $21 per share, which translates to a yield of 1.17% on the current share price, while its four-year average dividend yield is 2.69%. Its dividend payouts have grown at CAGRs of 12.9% and 17.5% over the past three and five years, respectively. Broadcom also raised its dividend payouts for 13 consecutive years.

In the last quarterly earnings release, AVGO announced a ten-for-one forward stock split of its common stock, making ownership of Broadcom stock more accessible to investors. The company’s decision to execute a stock split represents a strategic move to enhance shareholder value and broaden investor participation.

By making its shares more accessible and increasing liquidity, Broadcom positions itself to attract a diverse array of investors keen on capitalizing on the AI-driven semiconductor boom. The stock split is a pivotal catalyst that could propel AVGO’s growth trajectory forward, cementing its status as a critical player in the evolving tech industry.

In a report released on June 16, William Stein from Truist Financial maintained a Buy rating on AVGO, with a price target of $2,045. Further, Oppenheimer’s Rick Schafer increased the price target on Broadcom from $1,500 to $2,000 while maintaining a Buy rating on the stock.

In addition to Oppenheimer’s rating update, other analysts adjusted their price targets for AVGO. Goldman Sachs’ Toshiya Hari raised the price target from $1,550 to $1,850 and maintained a Strong Buy rating. Also, JP Morgan’s Harlan Sur raised the price target from $1,700 to $2,000 and maintained a Strong Buy rating on the stock.

In conclusion, for investors eyeing opportunities in the dynamic intersection of AI and semiconductor sectors, Broadcom’s ten-for-one stock split presents a compelling avenue to consider, backed by sound fundamentals and strategic foresight.

Investing in AI: Should You Bet on AMD, Broadcom, or NVIDIA?

Posted on by The INO.com Team

Is NVDA the Top Player in AI Stocks?

Initially famed for gaming GPUs, NVIDIA Corporation (NVDA) has evolved into a leader in data center hardware, spearheading AI advancement. The company’s Hopper GPUs are in high demand, accelerating AI applications from recommendation engines to natural language processing and generative AI large language models like ChatGPT on NVIDIA platforms. At this point, NVDA’s dominance in AI and data center markets is undeniable.

For the first quarter that ended April 28, 2024, Nvidia saw over 3x year-over-year increase to $26.04 billion, a new record level. NVIDIA’s Data Center Group (primarily connected to its AI operations) chalked up $22.60 billion in revenue, resulting in a 23% sequential gain and a massive 427% rise over the same period last year.

The chip giant’s operating income surged 690% from the year-ago value to $16.91 billion. NVIDIA’s non-GAAP net income amounted to $15.24 billion or $6.12 per share, compared to $2.71 billion or $1.09 per share in the previous year’s quarter, respectively.

Buoyed by a robust financial position, NVDA increased its quarterly dividend by 150% from $0.04 per share to $0.10 per share of common stock. The increased dividend is equivalent to $0.01 per share on a post-split basis and will be paid to its shareholders on June 28, 2024.

Moving forward, the company guided for a nice round of $28 billion in revenue for its second quarter of the fiscal year 2025, representing a projected 7.5% sequential gain. Its non-GAAP gross margin is expected to be 75.5%, plus or minus 50 basis points.

Analysts expect NVDA’s revenue for the fiscal 2025 second quarter (ending July 2024) to increase 109.7% year-over-year to $28.32 billion. The consensus EPS estimate of $6.35 for the current quarter indicates a 135.1% improvement year-over-year. Moreover, the company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Nvidia’s comprehensive offerings, from chips to boards, systems, software, services, and supercomputing time, cater to expanding markets and diversify its revenue streams. Moreover, the chipmaker’s shares have surged more than 130% over the past six months and nearly 190% over the past year. NVIDIA's trajectory suggests an unstoppable momentum fueled by AI adoption mirroring a similar upward curve, promising a bright future.

Amid this, do AI stocks Broadcom Inc. (AVGO) and Advanced Micro Devices, Inc. (AMD) stand a chance to be as big as the industry leader, NVIDIA? Let’s fundamentally analyze them to find the answer.

Broadcom Inc. (AVGO)

Broadcom Inc. (AVGO) is emerging as one of Nvidia's toughest rivals in the race for networking revenue, especially as data centers undergo rapid transformation for the AI era. As a global tech leader, AVGO designs, develops, and supplies semiconductor and infrastructure software solutions. The company produces custom AI accelerators for major clients and recently projected $7 billion in sales from its two largest customers in 2024, who are widely believed to be Alphabet Inc. (GOOGL) and Meta Platforms, Inc. (META).

AVGO will announce its fiscal 2024 second-quarter earnings on June 12. Forecasts indicate a 37.4% year-over-year revenue surge to $12 billion, reflecting steady growth and financial resilience. Moreover, analysts expect a 5% uptick in the company’s EPS from the preceding year’s period to $10.84.

Broadcom has consistently exceeded consensus revenue and EPS estimates in each of the trailing four quarters, including the first quarter. Its net revenue increased 34% year-over-year to $11.96 billion, with a triple-digit revenue growth in the Infrastructure Software segment to $4.57 billion. AVGO’s gross margin grew 22.8% from the year-ago value to $7.37 billion.

On top of it, the company’s non-GAAP net income for the three months came in at $5.25 billion or $10.99 per share, up 17.2% and 6.4% year-over-year, respectively. Also, its adjusted EBITDA increased from the prior-year quarter to $7.16 billion.

Looking ahead, the company forecasts nearly $50 billion in revenues for fiscal year 2024, with adjusted EBITDA projected to be approximately 60% of its revenue. The company anticipates a 30% year-over-year surge in networking sales, driven by accelerated deployments of networking connectivity and the expansion of AI accelerators in hyperscalers. It also expects generative AI to account for 25% of semiconductor revenue.

The artificial intelligence megatrend is poised to significantly drive Broadcom's revenue and earnings growth in the upcoming decade. During a recent earnings call, Broadcom CEO Hock Tan emphasized, “Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment.”

On May 20, 2024, AVGO announced its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters to revolutionize the data center ecosystem. These products offer an enhanced, open, standards-based Ethernet NIC and switching solution to resolve connectivity bottlenecks as XPU bandwidth and cluster sizes grow rapidly in AI data centers.

Patrick Moorhead, CEO & chief analyst at Moor Insights and Strategy, noted, “As the industry races to deliver generative AI at scale, the immense volumes of data that must be processed to train LLMs require even larger server clusters. Scalable high bandwidth, low latency connectivity is critical for maximizing the performance of these AI clusters.”

He added, “Ethernet presents a compelling case as the networking technology of choice for next-generation AI workloads. The 400G NICs offered by Broadcom, built on its success in delivering Ethernet at scale, offers open connectivity at an attractive TCO for power-hungry AI applications.”

With the company's expanding presence in the AI space, Broadcom stands out as a compelling alternative to major chip companies such as NVDA and AMD. Over the past six months, shares of AVGO have gained more than 42%, and nearly 63% over the past year, making it an attractive addition to your investment portfolio.

Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) has been at the forefront of innovation in high-performance computing, graphics, and visualization technologies for decades. While NVDA may be the first name that comes to mind in AI processor sales, AMD has established itself as a formidable competitor in the GPU space, particularly excelling in chips tailored for AI workloads.

However, AMD's influence doesn't stop in hardware; it has been actively expanding its AI software ecosystem. The company recently unveiled the groundbreaking AMD Ryzen™ AI 300 Series processors, featuring the world’s most powerful Neural Processing Unit (NPU). These processors are designed to bring AI capabilities directly to next-gen PCs, promising a future where AI-infused computing is seamlessly integrated into everyday tasks.

Additionally, the next-gen AMD Ryzen™ 9000 Series processors for desktops solidify AMD’s position as a leader in performance and efficiency for gamers, content creators, and prosumers alike.

Moreover, the company’s comprehensive roadmap for the Instinct accelerator series promises an annual cadence of cutting-edge AI performance and memory capabilities across each generation. Beginning with the imminent release of the AMD Instinct MI325X accelerator in Q4 2024, followed by the anticipated launch of the AMD Instinct MI350 series powered by the new AMD CDNA™ 4 architecture in 2025, AMD is poised to deliver up to a 35x increase in AI inference performance compared to its previous iterations.

In the first quarter that ended March 30, 2024, AMD’s non-GAAP revenue increased 2.2% year-over-year to $5.47 billion. Both its Data Center and Client segments experienced substantial growth, each exceeding 80% year-over-year, fueled by the uptake of MI300 AI accelerators and the popularity of Ryzen and EPYC processors.

Moreover, the company’s non-GAAP operating income grew 3.2% from the year-ago value to $1.13 billion. Its non-GAAP net income and earnings per share rose 4.4% and 3.3% from the prior-year quarter to $1.01 billion and $0.62, respectively.

AMD expects its revenue in the second quarter of 2024 to be around $5.7 billion, with a projected growth of 6% year-over-year and 4% sequentially. Meanwhile, its non-GAAP gross margin is expected to be around 53%.

Street expects AMD’s revenue for the second quarter (ending June 2024) to increase 6.7% year-over-year to $5.72 billion. Its EPS for the ongoing quarter is projected to reach $0.68, registering a 17% year-over-year growth. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

While Nvidia’s Data Center segment reported a sales run rate of $90 billion in the last quarter alone, experts predict that the company could surpass the $100 billion mark in Data Center sales with this momentum. In contrast, AMD's recent guidance forecasts sales of $3.5 billion for its MI300 AI chips in 2024. There’s still a sizable gap between NVIDIA and AMD in AI revenue. To put things into perspective, NVDA's networking revenue alone is approximately four times larger than AMD's total AI chip sales.

Nonetheless, AMD is poised to drive AI innovation across various domains with a diverse portfolio spanning cloud, edge, client, and beyond. The stock has gained more than 55% and 39% over the past nine months and a year, respectively.

Bottom Line

With the global artificial intelligence (AI) market projected to soar from $214.6 billion in 2024 to $1.34 trillion by 2030 (exhibiting a CAGR of 35.7%), leading chip companies, including NVIDIA, Broadcom, and Advanced Micro Devices, are rapidly expanding their market presence, vying for a piece of the pie.

Given their solid fundamentals and promising long-term outlooks, NVDA, AVGO, and AMD appear in good shape to thrive in the foreseeable future. Thus, investors can place their bets on these stocks to garner profitable returns and capitalize on the upward curve of AI.

Long-Term Play: How AVGO's Focus on Artificial Intelligence Drives Growth

Posted on by The INO.com Team

Broadcom Inc. (AVGO), a global tech leader that develops and supplies semiconductor and infrastructure software solutions, exceeded analysts’ expectations for both revenue and earnings in the first quarter of fiscal year 2024. Its revenue and EPS came in at $11.96 billion and $10.99, surpassing the analysts’ estimates of $11.72 billion and $10.42, respectively.

For the quarter that ended February 4, 2024, the company’s net revenue witnessed a 34.2% increase year-over-year. The revenue increase was primarily driven by AVGO’s acquisition of VMware in November 2023, which accelerated growth in its infrastructure software segment. Also, the company saw a high demand for its networking products, particularly in AI data centers and custom AI accelerators from hyperscalers.

AVGO’s first-quarter non-GAAP net income and non-GAAP earnings per common share rose 17.2% and 6.4% from the prior year’s period to $5.25 billion and $10.99, respectively. Furthermore, the company’s adjusted EBITDA grew 26% from the year-ago value to $7.16 billion.

Broadcom’s fiscal 2024 software revenue guidance is set at an impressive $20 billion. Additionally, fueled by the sustained robust demand for AI NAND, the company anticipates networking revenue to exceed 35% year-on-year growth, surpassing its early projection of 30% annual growth.

Moreover, it projects moderate to strong single-digit percentage year-over-year growth in its Semiconductor Solutions division for fiscal 2024. AVGO has reiterated its consolidated revenue target of $50 billion, representing a 40% increase year-over-year. It has also reiterated its adjusted EBITDA forecast of $30 billion for the year, a 60% growth rate.

In addition, Streets expects Broadcom’s revenue and earnings per share for the second quarter of fiscal 2024, ending April 2024, to rise by 37.3% and 4.9% to $11.99 billion and $10.82, respectively.

Several Cutting-Edge Innovations and Breakthroughs

On March 14, 2024, AVGO launched Bailly, the industry's first groundbreaking 51.2 Tbps CPO Ethernet switch. The innovation would allow hyperscalers to establish energy-efficient and cost-effective large-scale AI and computing clusters.

AVGO’s technology leadership and manufacturing innovations will ensure that Bailly delivers 70% better power efficiency and an optical I/O roadmap that aligns with the future bandwidth and power needs of AI infrastructure.

Furthermore, the tech company’s March 13 announcements showcased vital advancements extending its market leadership with an expanded portfolio of optical interconnect solutions for AI and ML applications. The cutting-edge optics support high-speed data transfers in large-scale generative AI compute clusters, connecting front-end and back-end networks.

Key achievements unveiled by Broadcom include the production release of 200-Gbps per lane electro-absorption modulated laser (EML) to pair with next-gen GPUs, the demonstration of the industry’s first 200G/lane vertical-cavity surface-emitting laser (VCSEL), and the shipment of over 20 million channels of 100G/lane high-speed optical components used in AI/ML systems.

Moreover, AVGO showcased the continuous wave (CW) laser with high efficiency and high linearity for silicon photonics (SiPh) modulation at 200G. These breakthroughs will revolutionize high-speed interconnects within AI clusters, facilitating front-end and back-end generative AI compute networks.

“Generative AI has unleashed a network transformation necessitating an order of magnitude increase in high-speed optical links compared to standard network requirements,” said Near Margalit, vice president and general manager of the Optical Systems Division at AVGO. “We will continue to invest in VCSEL, EML and CW laser technologies to deliver disruptive innovation in bandwidth, power and latency for optical interconnects in next generation AI links.”

According to Dr. Vladimir Kozlov, founder and CEO of LightCounting Market Research, Alphabet Inc. (GOOGL) and NVIDIA Corporation (NVDA) will lead the way as the initial adopters of 200G per lane optics for linking GPUs and TPUs in AI clusters, which is currently a highly sought-after segment in the market.

Kozlov added that Broadcom, known for pioneering innovative components, is once again at the forefront by supplying the necessary technology for the next generation of optical transceivers, supporting the rapid evolution of AI infrastructure.

“NVIDIA is at the forefront of photonics innovation, and Broadcom has been an important optical-component partner, matching the pace and scale required as we advance our HPC and AI optical-interconnect technology,” said Craig Thompson, vice president of LinkX products at NVDA. 

At Innolight, we have been deploying leading-edge optical interconnect solutions for AI, ML and HPC applications,” stated Osa Mok, CMO at Innolight Technology. “We are excited to continue our partnership with Broadcom to develop advanced terabit optical modules for generative AI, enabling AI clusters to scale and support the next generation of LLMs.”

Also, Sean Davies, vice president of sales at Eoptolink Technology, said, “We are excited to partner with Broadcom to bring to market state-of-the-art solutions to enable terabit connectivity and drive new generative AI architectures.”

Dividend Growth Trajectory

AVGO recently declared a quarterly dividend of $5.25 per share, payable on March 29, 2024, to shareholders on record as of March 21, 2024. This increase brings the annual dividend to $21 per share. The company has increased its dividends for 13 consecutive years.

Moreover, over the past five years, the company’s dividend payouts have grown at a CAGR of 19.3%. AVGO’s annual dividend translates to a yield of 1.70% at the prevailing stock price.

The company's strong financial performance and success in the AI chips market, along with synergies from a recent merger, suggest ongoing earnings growth, which supports the potential for future dividend increases.

Valuation Concerns

While all seems well, AVGO's substantial surge over the past year has led to a lofty valuation. Its forward P/E ratio stands at 61.45x, 118.2% higher than the industry average of 28.16x. Likewise, the stock’s forward EV/Sales and forward Price/Sales of 12.68x and 11.41x are 337.4% and 295.7% higher than the industry averages of 2.90x and 2.88x, respectively.

Thus, buying shares of AVGO at the moment might not be the best investment decision. However, one could closely monitor this stock as its strong AI business could drive significant growth in the future.

Favorable Analyst Estimates

Citigroup (C) analyst Christopher Danely strongly recommends buying AVGO stock, with a price target of $1,100. The upgrade is based on the company's solid core business performance and the positive impact expected from its VMware acquisition after the release of its fourth quarter and fiscal year 2023 earnings.

AVGO’s impressive financial results, particularly the contributions from AI, played a key role in this decision. Notably, the management has significantly increased its AI spending target from $4 billion in 2023 to more than $8 billion in 2024.

Currently, 86.7% of top-rated analysts rate AVGO as a Strong Buy or Buy, while 13.3% consider it a Hold. None suggest selling the stock. Analysts forecast AVGO’s upcoming year to yield earnings per share of $39.68, marking an 18.5% year-over-year increase if predictions hold true.

Bottom Line

AVGO’s impact on global connectivity is profound. The semiconductor giant supplies chips for virtually all internet-connected devices and is evolving into a software solutions provider for businesses. Broadcom has been primarily benefiting from the robust adoption of AI. The stock has gained more than 45% over the past six months and around 97% over the past year.

During the first quarter of fiscal 2024, the company’s AI revenues under its semiconductor segment quadrupled year-over-year to $2.30 billion. Further, AVGO projects fiscal 2024 AI revenues of nearly $10 billion, higher than the prior guidance of $7.50 billion and account for about 35% of semiconductor revenues, up from previous guidance of 25%.

AVGO recently announced key accomplishments, extending its market leadership with an expanded portfolio of optical interconnect solutions for AI and ML applications. These developments signify significant progress in incorporating state-of-the-art optical technologies into the constantly shifting realm of AI infrastructure.

The collaboration between Broadcom and key industry leaders like NVIDIA, Innolight Technology, and Eoptolink Technology further highlights the cooperative approach toward advancing AI/ML optical transceiver technologies. This joint endeavor seeks to meet the increasing need for larger AI clusters while fostering innovation in generative AI architectures.

Despite its high valuation, the company boasts strong business fundamentals and prospects amid emerging AI capabilities, making it a reliable long-term investment option.