Broadcom Inc. has seen its stock rise by over 35% this year, aligning with the growth seen by its peer – Lam Research. The company recently reported its Q2 fiscal 2024 results, with revenues and earnings exceeding street estimates. Broadcom reported revenue of $12.5 billion and earnings of $10.96 per share, compared to consensus estimates of $12.0 billion and $10.84, respectively. The company’s outlook for 2025 is also slightly better than expectations, with sales expected to rise 42% to $51 billion and EBITDA to be 61% of sales. Broadcom also declared a ten-for-one forward stock split to be completed next month, leading to a 12% increase in after-market hours on June 13th.
Over the past three years, Broadcom’s stock has seen strong gains of 240%, outperforming the S&P 500 index each year. Returns for the stock were 52% in 2021, -16% in 2022, and 100% in 2023. The Trefis High Quality Portfolio, consisting of 30 stocks, has also outperformed the S&P 500 each year over the same period, with HQ Portfolio stocks providing better returns with less risk versus the benchmark index. Despite the uncertain macroeconomic environment with high oil prices and elevated interest rates, Broadcom’s stock is considered appropriately priced at 15x trailing revenues compared to the 11x average seen over the last three years.
Broadcom’s Q2 revenue of $12.5 billion was up 43% year-over-year, driven by the contribution from VMware, which it acquired for $69 billion last year. Apart from VMware, Broadcom’s AI products also contributed to its top-line growth. The adjusted operating margin contracted over 450 basis points to 57.2%, primarily due to a 2x rise in R&D and SG&A expenses after the VMware acquisition. The company’s adjusted earnings of $10.96 per share were up 6.2% year-over-year, reflecting the overall strong performance in the quarter.
The strong Q2 performance and full-year guidance are expected to drive Broadcom stock to higher levels in the near term. The announcement of a stock split is also likely to have a positive impact on AVGO stock prices, as splits often cause a run-up in the stock price post-announcement, making the shares more accessible to smaller investors and driving up demand. While AVGO stock appears poised for growth, it is important to consider how Broadcom’s peers fare on key metrics as well. Peer comparisons can provide valuable insights into the company’s performance relative to others in the industry.
Overall, Broadcom’s upbeat earnings and outlook, along with the stock split announcement, are expected to bode well with investors and drive the stock to higher levels in the coming months. As the company continues to show strong growth and performance, investors are optimistic about the future prospects of AVGO stock.
