Broadcom stock nears key price; could hit $1 trillion valuation soon
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- Broadcom shares have soared by over 111% in the last 12 months.
- The company has done well, helped by its big acquisitions.
- Broadcom needs to rise by over 22% to get to a $1 trillion valuation.
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Broadcom (AVGO) stock price is firing on all cylinders as the company matches towards a $1 trillion market cap. It has risen by over 61% this year, pushing its market cap to over $817 billion.
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As such, it needs to rise by 22.38% to $220 to get to a trillion-dollar valuation, which is possible if the current momentum continues.
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Broadcom and the AI opportunity
Copy link to sectionBroadcom is a large technology company with a presence across various sub-sectors. It is a leading player in the semiconductor industry, where it offers broadband, networking, wireless, storage, and industrial solutions.
Broadcom is not as popular as other chip companies like Intel, AMD, and Nvidia, because people rarely interact with its semiconductor products. However, most people use its solutions through its clients like Apple, Samsung, Google, and Amazon.
A key solution that Broadcom makes in this segment is its Tomahawk chip, which is set to increase broadband to 102.4 Tbps, double that of the last generation. These chips are also significantly faster than those made by companies like Cisco and Marvell.
It is also a big player in the software industry through its Brocade, CA Technologies, an Symantec.
All these businesses, and its substantial market share, have made Broadcom to be one of the biggest companies globally. Its business is also growing substantially in the past few years, with the total revenue rising from $22.6 billion in 2019 to $46 billion in the trailing twelve months.
Some of this growth was organic while most of it was through acquisitions. The most recent mega buyout was VMware, a top company in the virtualization industry, in a $30.8 billion deal.
Before that, it bought Symantec in a $10 billion deal, CA Technologies for $18.9 billion and Brocade for $5.5 billion. These buyouts have helped it become one of the biggest players in the software industry.
Read more: Broadcom stock has turned $1,000 into $9,000 in 4 years: what’s next?
Broadcom’s growth has continued
Copy link to sectionThe most recent financial results showed that Brodcom’s revenue soared to $13 billion, a 47% annual increase. While the company had organic growth, most of this performance was because of its VMware business.
Most of this revenue, or $7.2 billion, came from its semiconductor segment, which made $7.27 billion. Infrastructure software made over $5.7 billion. Also, its free cash flow rose to over $4.79 billion.
Broadcom estimated that its fourth-quarter revenue would rise by $1 billion to over $14 billion.
Analysts believe that Broadcom has room to grow its business, especially in this era of artificial intelligence. The average estimate is that its revenue will be $14.04 billion, slightly higher than the company’s forecast.
Broadcom has a good record of doing better than estimates. Most recently, its earnings were better than estimates in the last three consecutive quarters.
Read more: Broadcom stock analysis: AVGO could hit a $1 trillion valuation
AVGO valuation concerns
Copy link to sectionAnalysts expect that Broadcom’s annual revenue will grow by 44% to $51.6 billion followed by $64 billion in the next financial year.
Some analysts, including this, expect that Broadcom’s annual revenue will remain in the double digits in the next few years. He expects that its annual revenue will be over $145 billion by 2030 and $184 billion by 2033.
If these numbers are accurate, and if Broadcom’s net income margin grows from the current 10.8% to 15% by then, it means that its annual profit will be over $27.6 billion, a big increase from the $14 billion it made in the last financial year.
Broadcom trades at a non-GAAP price-to-earnings (P/E) ratio of 38.56, which is substantially higher than the industry median of 23. Its forward P/E multiple of 36 is also higher than the industry median of 23.
Also, these metrics are significantly higher than the five-year average of 20.3 and 18.7, respectively. These numbers mean that the company will need to continue executing well in the coming years.
Broadcom is also popular because of its dividends, which it has boosted by over 14% in the last five years. It has a dividend yield of 1.2% and a payout multiple of 46%. Also, the company has grown its payouts in the last 13 years, making it a potential future dividend aristocrat.
Broadcom stock price analysis
Copy link to sectionAVGO chart by TradingView
The daily chart shows that the AVGO stock price has been in a strong bull run in the past few months. It has risen above the key resistance point at $170.9, its highest point on August 22.
The stock has moved above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI), Stochastic Oscillator, and the MACD indicators have moved upwards.
Therefore, a move above the key resistance point at $184.20, its highest point in June this year. A move above that level will invalidate the double-top pattern, and point to more gains. If this happens, the Broadcom share price will likely continue rising as bulls target the key resistance at $220, pushing its market cap to over $1 trillion.
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