{"id":59542,"date":"2024-07-22T06:00:01","date_gmt":"2024-07-22T10:00:01","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=59542"},"modified":"2024-08-19T09:02:41","modified_gmt":"2024-08-19T13:02:41","slug":"broadcom-avgo-and-micron-mu-top-picks-for-data-center-investment-surge","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2024\/07\/broadcom-avgo-and-micron-mu-top-picks-for-data-center-investment-surge\/","title":{"rendered":"Broadcom (AVGO) and Micron (MU): Top Picks for Data Center Investment Surge"},"content":{"rendered":"

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

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<\/span> a record $227 billion in 2024<\/span><\/a>. This figure marks a 39% increase compared to the previous year.<\/span><\/p>\n

c, Microsoft, and<\/span> Meta Platforms, Inc. (META)<\/span><\/a> are predicted to more than double their spending compared to 2020 levels, while<\/span> Oracle Corporation (ORCL)<\/span><\/a> 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.<\/span><\/p>\n

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

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.<\/span><\/p>\n

Broadcom Inc. (AVGO)<\/b><\/p>\n

Valued at a $732.45 billion market cap,<\/span> Broadcom Inc. (AVGO)<\/span><\/a> is a global tech leader that designs, develops, and supplies semiconductor and infrastructure software solutions. Broadcom\u2019s extensive portfolio of semiconductor solutions, including networking chips, storage adapters, and advanced optical components, makes it a critical supplier for data centers.<\/span><\/p>\n

Moreover, Broadcom\u2019s leadership in networking solutions, exemplified by its<\/span> Tomahawk<\/span><\/a> and<\/span> Trident series of Ethernet switches<\/span><\/a>, positions it as a critical beneficiary of increased AI data center spending.<\/span><\/p>\n

In May, AVGO revolutionized the data center ecosystem with its latest portfolio of highly scalable, high-performing, low-power<\/span> 400G PCIe Gen 5.0 Ethernet adapters<\/span><\/a>. 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.<\/span><\/p>\n

Further, Broadcom\u2019s strategic acquisitions, such as<\/span> the recent purchase of VMware, Inc.<\/span><\/a>, 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\u2019s leading infrastructure technology company.\u00a0<\/span><\/p>\n

Broadcom\u2019s solid<\/span> second-quarter performance<\/span><\/a> was primarily driven by AI demand and VMware. AVGO\u2019s 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.<\/span><\/p>\n

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.<\/span><\/p>\n

Further, the company\u2019s non-GAAP net income was $5.39 billion or $10.96 per share, up 20.2% and 6.2% from the prior year\u2019s 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.<\/span><\/p>\n

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

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.<\/span><\/p>\n

Analysts expect AVGO\u2019s 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.<\/span><\/p>\n

In addition, the company\u2019s 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.<\/span><\/p>\n

AVGO\u2019s 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.<\/span><\/p>\n

Micron Technology, Inc. (MU)<\/b><\/p>\n

Another chipmaker that is well-poised to benefit from significant data center spending among enterprises is<\/span> Micron Technology, Inc. (MU)<\/span><\/a>. 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.<\/span><\/p>\n

Micron\u2019s 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\u2019s innovation in memory technologies, such as the<\/span> HBM2E<\/span><\/a>, aligns well with the performance requirements of modern data centers.<\/span><\/p>\n

Also, recently, MU announced<\/span> sampling its next-generation GDDR7 graphics memory<\/span><\/a> with the industry\u2019s 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<\/span> ship 128GB DDR5 32Gb server DRAM<\/span><\/a> to address the increasing demands for rigorous speed and capacity of memory-intensive Gen AI applications.<\/span><\/p>\n

Further, MU\u2019s strategic partnerships with leading tech companies like Nvidia and<\/span> Intel Corporation (INTC)<\/span><\/a> position the chipmaker at the forefront of technology advancements. In February, Micron started mass production of its HBM2E solution for use in Nvidia\u2019s latest AI chip. Micron\u2019s 24GB 8H HBM3E<\/span> will be part of NVIDIA H200 Tensor Core GPUs<\/span><\/a>, expected to begin shipping in the second quarter.<\/span><\/p>\n

For the<\/span> third quarter<\/span><\/a>, which ended May 30, 2024, MU posted revenue of $6.81 billion, surpassing analysts\u2019 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.<\/span><\/p>\n

MU\u2019s non-GAAP gross margin was $1.92 billion, versus $1.16 million in the prior quarter and negative $603 million for the previous year\u2019s 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.<\/span><\/p>\n

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\u2019s quarter.<\/span><\/p>\n

For the fourth quarter of fiscal 2024, Micron expects non-GAAP revenue of $7.60 million \u00b1 $200 million, and its gross margin is anticipated to be 34.5% \u00b1 1%. Also, the company expects its non-GAAP earnings per share to be $1.08 \u00b1 0.08.<\/span><\/p>\n

Analysts expect AVGO\u2019s 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\u2019s quarter. Further, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.<\/span><\/p>\n

MU\u2019s shares have surged over 30% over the past six months and approximately 75% over the past year.<\/span><\/p>\n

Bottom Line<\/b><\/p>\n

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\u2019s 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.<\/span><\/p>\n

While Broadcom\u2019s diverse semiconductor solutions and Micron\u2019s 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.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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. 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