In the past 15 months, shares of semiconductor companies involved in artificial intelligence (AI) have experienced significant growth, rebounding from lows seen in 2022 to reach near-record highs. Broadcom Ltd (NASDAQ:AVGO) stands out, boasting a remarkable 110% increase in the past year and an astonishing 2,600% surge over the last decade, factoring in dividends. With a market capitalization of $600 billion, Broadcom ranks among the largest companies globally. The question arises: Can this blue-chip dividend stock attain a $1 trillion valuation in 2024?
Broadcom’s Recent Performance and Outlook
Broadcom recently disclosed its fiscal Q1 2024 results, ending in January, reporting revenue of $12 billion and adjusted earnings per share of $10.99. These figures exceeded analysts’ forecasts of $11.72 billion in sales and earnings of $10.29 per share for the same period. The company’s acquisition of VMWare in 2023 contributed to a 34% increase in sales, with organic sales growing by 11%, notably higher than the 4% growth in the previous fiscal quarter of 2023. The surge in growth was primarily fueled by robust demand for AI products. While semiconductor solutions sales rose by 4% to $7.4 billion, infrastructure software revenue more than doubled to $4.6 billion. Adjusted EBITDA increased by 26% to $7.16 billion, with adjusted earnings up by 6.4% year over year. Despite these positive results, Broadcom’s stock experienced an 8% decline over the past two trading sessions, following its decision to maintain full-year revenue guidance at $50 billion and EBITDA estimates at $30 billion.
AI as a Catalyst for Growth
Broadcom anticipates that the artificial intelligence trend will significantly drive revenue and earnings growth in the coming decade. CEO Hock Tan emphasized the strong demand for networking products in AI data centers and custom AI accelerators from hyperscalers during the company’s recent earnings call. Broadcom’s portfolio of networking solutions plays a crucial role in supporting generative AI tools, such as ChatGPT, with AI tools accounting for 15% of its chip sales in the last year. The company expects networking sales to surge by 30% year-over-year, driven by increasing deployments of networking connectivity and expansion of AI accelerators in hyperscalers. Additionally, generative AI is projected to contribute 25% of semiconductor revenue in fiscal 2024.
Valuation and Analyst Sentiment
Analysts project a 28.3% increase in sales to $46 billion and a 10% expansion in earnings to $46.47 in fiscal 2024 for AVGO stock. With forward earnings multiple of 28x, AVGO stock appears reasonably priced, considering the forecasted annual earnings growth of 13.8% over the next five years. Out of 26 analysts covering Broadcom stock, 22 recommend “strong buy,” while four recommend “hold.” The average target price for AVGO stock stands at $1,282.34, slightly below the current trading price.
Conclusion
Although the prospect of Broadcom achieving a $1 trillion valuation in 2024 seems unlikely, barring an exponential AI boom in the latter half of the year, the company’s robust performance and strategic positioning within the AI market suggest continued growth potential. Investors should monitor developments closely as Broadcom navigates through evolving market dynamics and technological advancements.
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