It Nasdaq Composite: it hit new highs multiple times in 2024, setting more than 110 new all-time highs, fueled by a number of encouraging developments artificial intelligence (AI) The initial catalyst for the comeback, however, has been buoyed by lower inflation, recent rate cuts and the U.S. election results. as of now.) Students of history will note that the rally will likely continue until 2025.
Stock charts show that the current bull market started in October 2022. Although each rally is different, bull markets have historically been on average for more than two years. suggesting that it is likely to continue into next year.Furthermore, after gains of 30% or more, the Nasdaq is up an additional 19% on average, which suggests that the coming year could be a good year for the market.
Investors have also embraced the resurgence of stock splits. This leads them to look at companies that have split their stock, as this is generally the result of a well-managed company with strong sales and earnings growth Broadcom:(NASDAQ: AVGO). The stock is up 98% so far this year and 2,100% over the past decade (as of this writing). 1 for 10 stock splitwhich ended in mid-July.
However, despite the recent rally, there’s reason to believe Broadcom’s impressive performance will continue into 2025 and beyond. Read on to find out why.
Image source: Getty Images.
Broadcom provides a wide range of semiconductor, software and security products that supply the mobile, broadband, cable and data center industries, but many investors continue to underestimate its reach. Management estimates that “99% of all Internet traffic goes through some type of Broadcom technology.”
That’s just the beginning. Broadcom is made up of “26 category-leading semiconductor and infrastructure software divisions,” according to the company. Its semiconductor solutions are critical components in the networking, server storage, broadband, and wireless industries core, distributed, cyber security, storage area network and cloud infrastructure areas.
Broadcom’s massive reach gave the company a strategic advantage when generative AI went viral early last year. Many of its products are critical components in data centers, where most AI development takes place.
One consequence of the rapid adoption of AI has been the struggle to modernize data centers to cope with the rigors of AI. Nvidia: CEO Jensen Huang predicts more than $1 trillion in data center upgrades over the next five years, with another $1 trillion spent bringing new data centers online, a significant opportunity for Broadcom.
Earlier this year, Broadcom’s latest acquisition was recognized by VMWare Gartner‘s Magic Quadrant is a leader in software-defined wide area networking (SD-WAN) for the seventh year in a row, confirming its important place in the industry.
The results are compelling: In its fiscal fourth quarter (ended Nov. 3), Broadcom posted revenue of $14 billion, up 51% year over year. Its adjusted earnings per share (EPS) were $1.42. increased by 31%. Management was clear that growing demand for AI was driving results: AI networking revenue grew 158% year-over-year, while sales of custom accelerators (XPU) doubled and communications product revenue quadrupled.
For the upcoming first quarter, Broadcom is guiding revenue of $14.6 billion, ahead of Wall Street expectations of $14.47 billion. Management is also guiding for continued margin expansion, which will lift adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to 66% of revenue from 65% in the fourth quarter.
Looking further ahead, its growth is set to accelerate, with management forecasting AI revenue of between $60 billion and $90 billion in fiscal 2024 , that represents growth of 391% to 638% over the next three years.The company also announced that it has added two new hyperscale customers, which are not included in its forecasts, suggesting its growth could be even stronger.
Wall Street is evenly bullish. Analysts have an average price target of about $234 (as of this writing), representing a potential upside of 6%. Additionally, 88% of the 43 analysts polling in December rate the stock a buy or strong buy. one does not recommend selling.
However, Jefferies analyst Blaine Curtis is much more bullish than his Wall Street peers. Just this week, he raised his price target to $300, a potential upside of 36% for investors. He is particularly bullish on application integrated circuits (ASICs). with an opportunity that he believes will play a growing role in AI. He goes on to note that Broadcom is “uniquely positioned in AI With ASICs rapidly growing in complexity and size.”
One consequence of the recent price surge is Broadcom’s valuation.The stock currently trades at a premium of about 35 times, compared to a multiple of 30. S&P 500:. While that’s certainly a premium valuation, it shouldn’t be viewed in a vacuum.Broadcom has outperformed the broader market over the past five years, generating a 592% return, roughly seven times the broader benchmark.
When viewed through that lens, I’d argue that Broadcom is the way to go.
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