Broadcom (Nasdaq: AVGO) stock has gone up more than 64% over the past year. The tech company’s share price has doubled in the past 18 months. This occurred despite recent stock selloffs.
Is Broadcom stock a millionaire maker that can leverage its telecommunications technology as global data needs skyrocket and how high can Broadcom’s stock go? Is AVGO’s current valuation low enough for investors to reap rewards in the next decade?
Amazing Results, But Semiconductor Supply Chain Risks Remain
Broadcom’s revenue exploded last year thanks to its key role as a chip supplier for major tech companies such as Apple (AAPL), Google, IBM, Dell, and Nintendo (NTDOY). It also designs and supplies chips to OpenAI, the company behind ChatGPT. Broadcom chips are found in many devices for Wi-Fi, GPS, and wireless components.
Net revenue topped $51.5 billion for its FY 2024, 44% higher than the $35.8 billion in FY 2023. Net income grew $5.3 billion over the same period. Meanwhile, the chip supplier’s cash flow increased by $1.9 billion for the year.
Diluted earnings per share of Broadcom stock were $4.87 in 2024 compared to $4.22 in 2023. For the fourth quarter last year, adjusting earnings per share were 4 cents higher than expected, although revenue was about $400K short of what was forecast.
The rise of generative AI sparked a huge boon in revenues for Broadcom. Revenue from AI soared 220% to $12.2 billion last year.
Broadcom is developing AI chips for three massive customers. By 2027, the company expects to deliver 1 million of these chips for each customer. CEO Hock Tan said the company’s market opportunity for its AI chips is between $60 billion and $90 billion through 2027.
What Could Go Horribly Wrong?
Despite this monumental growth over the past couple of years, there are substantial risks when it comes to Broadcom’s semiconductor chips. Broadcom designs rather than manufactures its chips. Therefore, it outsources chipmaking to Taiwan Semiconductor Manufacturing Company, a facility in Singapore, and some fabrication plants in Colorado and Pennsylvania.
TSMC manufactures 90% of the world’s most advanced microchips. This includes Broadcom’s custom AI chips. Supply chain disruptions or tariffs could threaten the company’s core business expansion efforts. Taiwan is currently negotiating tariffs with the United States.
However, long-term supply chain disruption fears may be overstated for the business model of Broadcom. TSMC began its first production of N4 process technology at its Phoenix, Arizona, plant in late 2024.
By 2027, the Taiwan-based chipmaker plans to have its N3 process technology in place. This represents an accelerated plan, a year ahead of schedule, in response to threats of tariffs and global supply chain uncertainty. TSMC’s N3 manufacturing is vital to Broadcom’s success.
Another factor for investors to consider is the diversification of Broadcom’s business model. The tech giant designs broadband hardware, fiber optic components, and sensors for a wide range of electronic devices. It also provides mainframe computer software and enterprise software.
Broadcom stands to increase its revenue due to the rise of AI tools. Artificial intelligence requires massive amounts of data to work correctly and quickly. Broadcom can position itself as a major player in the AI landscape through its telecommunications hardware as data centers expand operations and gigabit speeds need to increase to meet demand.
How Does Broadcom Stock Measure Up Versus Competitors?
The main competitor to Broadcom is NVIDIA. Broadcom is the second-largest chip supplier in the United States behind NVIDIA. NVIDIA hit a $3 trillion market cap in mid-2024. The current valuation puts it at $2.8 trillion.
Broadcom, by contrast, has a market cap of nearly a trillion dollars. So, it’s worth about a third of NVIDIA. A look at the valuation of Broadcom versus NVIDIA shows very similar results. Broadcom is trading at nearly 98 times its trailing 12-month earnings, 18 times its sales, and 14 times its book value. NVIDIA posts numbers of 39, 22, and 35, respectively. So, investors are riding high expectations on both of these tech giants.
Despite recent losses from NVIDIA, investors are still confident in its ability to bounce back. However, Broadcom is a strong alternative to NVIDIA for investors looking to diversify their holdings in tech companies poised to skyrocket due to the rise of much higher demand for AI. The United Nations projects the global AI market will soar to $4.8 trillion by 2033, up from $189 billion in 2023, a 25-fold increase.
Is Broadcom a Millionaire Maker to Invest in Now?
Broadcom has the possibility to make millionaires over the long term depending on how much they invest but at a near trillion dollar valuation already the percentage gains are likely to be muted relative to smaller capitalized enterprises.
Certainly analysts are still upbeat about the prospects with a consensus $238 price target on it. And dividends have grown for 15 years straight though that’s likely coming to an end given the payout ratio is currently 100%. Still, net income is expected to grow again this year and the margins are likely to remain wide so there’s lots to like for those getting on board still.
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