Broadcom: On the Brink of Trillion-Dollar Status
Once leaders in market cap, industrial and oil companies have been overtaken by technology giants. In 2004, General Electric and ExxonMobil topped the charts with market values of $319 billion and $283 billion. Fast forward to today, and the tech sector, led by companies like Apple, Nvidia, and Microsoft, has reshaped the landscape. Now worth over $3 trillion each, these companies have jockeyed for the top spot multiple times this year, while Alphabet, Amazon, and Meta Platforms join the $1 trillion club, valued at $2 trillion, $1.9 trillion, and $1.5 trillion, respectively.
Currently standing with a market cap of about $818 billion (as of this writing), Broadcom (NASDAQ: AVGO) is close to joining this elite circle. With a significant role in artificial intelligence (AI) infrastructure, Broadcom’s growth could lead it to the $1 trillion mark sooner rather than later.
Image source: Getty Images.
Broadcom’s Impact on Technology
Broadcom offers a diverse array of semiconductor, software, and security solutions that are crucial across cable, broadband, mobile, and data center sectors. Management claims that “99% of all internet traffic crosses through some type of Broadcom technology.” This dominance positions the company well in the burgeoning AI landscape, where its technologies support generative AI functionality primarily within data centers and the cloud.
A recent acquisition of VMWare bolsters Broadcom’s position. Management is currently transitioning VMWare’s offerings to a subscription model, which is expected to enhance recurring revenue. Additionally, the company is advancing cross-selling opportunities with existing customers, a strategy that’s already underway.
Broadcom’s third-quarter results reflect this strong performance. For the fiscal quarter ending August 4, the company reported a 47% increase in revenue to $13.1 billion, with adjusted earnings per share (EPS) rising 18% to $1.24. Management has high expectations, raising the full-year revenue forecast to $51.5 billion, marking an anticipated 44% growth.
Toward Trillion-Dollar Valuation
With its extensive portfolio of chips and accessories essential for data centers, Broadcom is well-positioned to benefit from the AI boom.
Wall Street forecasts revenue of $51.61 billion for Broadcom in 2024, leading to a forward price-to-sales (P/S) ratio of nearly 16. To reach a $1 trillion market cap, the company must generate approximately $63 billion in sales annually, assuming the P/S remains unchanged.
The consensus among analysts shows expected revenue growth of 44% in 2024 and 14% in 2025. If these targets are met, Broadcom could achieve a $1 trillion market cap by 2026. Moreover, the accelerated adoption of AI might push these estimates higher.
Evidence indicates that membership in the trillion-dollar club could happen soon. In the third quarter, infrastructure software revenue surged 200%, and the company anticipates AI-related revenue to exceed $12 billion this year, comprising 23% of its forecasted annual revenue.
The potential market for generative AI continues to escalate, with estimates for its economic value ranging from $2.6 trillion to $4.4 trillion annually over the coming decade, according to McKinsey & Company. If embedded software revenue is included, this figure could double.
Broadcom’s impressive results and the recent stock split have led to a notable increase in its stock price. Presently, Broadcom trades at 36 times forward earnings, compared to 28 for the S&P 500. Since 2009, Broadcom’s stock has skyrocketed by 10,720%, far outpacing the S&P’s 471% gain, demonstrating why the premium is reasonable.
A New Investing Opportunity Awaits
Have you ever felt like you missed out on investing in top-performing stocks? Now could be your chance.
On rare occasions, our expert analysts present a “Double Down” stock recommendation for companies poised for growth. If you believe you’ve missed previous investment opportunities, now is an ideal time to consider Broadcom before the window closes. The historical performance speaks volumes:
- Amazon: A $1,000 investment from our recommendation in 2010 would be worth $21,266!*
- Apple: $1,000 invested when we suggested it in 2008 would now be $43,047!*
- Netflix: Investing $1,000 in 2004 would have grown to $389,794!*
Right now, we’re issuing “Double Down” alerts for three remarkable companies, and this may be a rare opportunity to invest again.
See 3 “Double Down” stocks »
*Stock Advisor returns as of October 7, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also on the board. Suzanne Frey, an executive at Alphabet, serves on the board as well. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia, including Broadcom. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
