Broadcom’s consumer weakness spills into the enterprise; there is time for a better entry point.

Broadcom

When it comes to the large-cap stocks we follow, Broadcom (NASDAQ:AVGO) is a top pick. Broadcom (NASDAQ:AVGO) is in software and hardware and expanding its software franchises. We’ve recommended buying stocks. But everything changed. In the future quarters, AVGO may encounter demand challenges. Both data center and enterprise firms may see demand slowdowns. Weak consumer spending has lowered PC and smartphone demand, and we expect data centers, cloud, and organizations to follow. While we’re still bullish on Broadcom (NASDAQ:AVGO) long-term, we think it’s best to wait for a better entry point.

Reduced spending by consumers is affecting the data center and corporate sectors.

Broadcom (NASDAQ:AVGO) serves the data center and enterprise industries. AVGO develops and supplies semiconductors and software globally. The company makes semiconductors. We predict Broadcom (NASDAQ:AVGO) stock will be under pressure soon because of deteriorating consumer spending.

We expect reduced demand for PCs and smartphones to hurt data center storage. Enterprises store data on-premises and in the cloud. We expect consumer spending to affect enterprise networking needs.

We predict these sectors’ demand to drop, like PC and smartphone demand in recent quarters. While we don’t anticipate AVGO will endure a downturn like Nvidia (NVDA), Micron (MU), Intel (INTC), Western Digital Corp. (WDC), and Seagate (STX), we think its semiconductor sector will soften.

AVGO’s enterprise and data center companies use HDDs and SSDs (SSDs). STX and WDC observed reductions in HDD and SSD demand. These declines are the first symptoms of further weakening in the storage industry, data centers, and corporations. Weak customer demand and supply chain concerns affect AVGO. We believe many Broadcom (NASDAQ:AVGO) customers double-order in anticipation of supply difficulties. Double-ordering boosted revenue and EPS. We feel the company has supply chain concerns and weak market headwinds, so investors should wait.

Software is booming.

Software is AVGO’s safety net when semiconductors falter. We feel the stock will hold up better than other pure semiconductor manufacturers because of the software business. We expect its software business to remain stable, countering decreased demand for data centers and enterprise networking. We don’t think the stock will work in the short run; therefore, investors should be patient.

This investor presentation graph shows AVGO’s software and semiconductor businesses.

Valuation

Broadcom (NASDAQ:AVGO) is $529. Comparatively, the stock is cheap. AVGO’s P/E is 13.1x C2023 EPS of $40.46, compared to 16.2x for the group. EV/Sales puts the stock above its peer group. EV/Sales for C2023 is 7.1x, compared to the 4.6x average. This chart shows semiconductor peer group valuation.

Wall Street Whispers

Wall Street loves AVGO. Twenty-one analysts recommend buying, and 4 recommend holding. The stock is $529. Sell-side price targets are $675 and $672, giving 27-28% upside. AVGO sell-side ratings and price targets are shown below.

Should You Invest in AVGO Stock

We don’t like AVGO’s near-term risk-reward profile. We expect cloud and enterprise demand to slow for Broadcom (NASDAQ:AVGO) . AVGO’s software division helps it weather semiconductor headwinds. As supply catches up to demand, we expect orders to stabilize and demand to decrease through 2023. We don’t expect the stock to expand significantly in the foreseeable future, so investors should wait out the volatility.

Featured Image : Megapixl © Wolterk 

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About the author: I'm a financial journalist with more than 1.5 years of experience. I worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan. I love to write about marketing and finance. Other than that, I like spending time in the gym and playing PC games.