Broadcom’s Stock Surges Following Strong Q4 Results and AI Demand
Broadcom AVGO shares have surged more than 30% since the semiconductor leader released impressive fiscal fourth-quarter results last Thursday. The momentum stems from strong demand for its custom artificial intelligence (AI) chips, which have become vital for AI data centers.
Recently achieving a market capitalization of $1 trillion for the first time, investors are eager to see if this rally will persist.
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Key Highlights from Broadcom’s Q4
Driven by its AI initiatives, Broadcom reported a 51% year-over-year sales increase in Q4, reaching $14.05 billion, slightly below Zacks’ estimate of $14.06 billion. Adjusted net income for Q4 stood at $6.96 billion, translating to $1.42 per share, surpassing the Zacks EPS consensus of $1.39 and rising 28% from $1.11 per share compared to the same quarter last year.
Overall, Broadcom recorded a 44% revenue increase for fiscal 2024, reaching a record $51.57 billion, with AI revenue more than tripling to $12.2 billion. Annual earnings per share ballooned 26% to $4.87, up from $3.86 in FY23.
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Positive Projections and Market Outlook
As a significant chip supplier for Apple AAPL, Broadcom CEO Hock Tan revealed the addition of two major hyperscale data center clients. Consequently, Broadcom anticipates a 22% increase in first-quarter revenue to $14.6 billion, with Zacks’ current consensus at $14.55 billion.
Additionally, AI revenue is projected to rise 65% in Q1 to $3.8 billion. Zacks forecasts total sales growth of 18% in FY25 and an additional 8% in FY26, potentially reaching $66.07 billion. Broadcom estimates its AI segment could generate between $60 billion and $90 billion in annual sales by 2027.
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Financial Performance and Valuation
Broadcom is increasingly competing with Nvidia NVDA for market leadership. The stock has more than doubled this year, significantly outperforming major market indexes.
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Trading at around $241 per share, AVGO has a forward earnings multiple of 36.7X. This is higher than the S&P 500’s 25.7X but lower than Nvidia’s 45.6X, aligning closely with the Zacks Electronics-Semiconductors Industry average.
Despite being reasonably priced relative to its earnings, Broadcom trades at a premium based on various valuation metrics, much like many of its major tech peers.
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Conclusion
After a strong performance, Broadcom holds a Zacks Rank #3 (Hold). The rising demand for its AI products enhances its marketing outlook, attracting long-term investors. However, further gains may depend on positive revisions to earnings estimates in the upcoming weeks.
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