Every era has its top technology stocks, including the illustrious “Magnificent Seven” that currently reign supreme in the market. However, the tech landscape is ever-changing, reminiscent of how the FAANG stocks evolved and morphed over time. Netflix’s exit made way for Nvidia and Microsoft, ushering in a new era of technological prowess.
Broadcom’s Expanding Horizons
Enter Broadcom (NASDAQ: AVGO), the underdog poised to shake up the tech hierarchy. With an impressive 11% surge this year, the company boasts a market cap of $575 billion, positioning itself as the 13th largest global entity today (or 12th, without considering Saudi Aramco). Unlike its peers in the Magnificent Seven, Broadcom has sculpted its empire primarily through strategic acquisitions. CEO Hock Tan’s masterful acquisitions have seen bloated tech businesses seamlessly integrated into Broadcom’s fold.
While Broadcom’s growth strategy differs from the organic evolution seen in other elite stocks, it shares common traits with the tech titans: robust competitive advantages, high margins, technological innovation, and a platform poised to harness the power of generative AI.
The Evolution of Broadcom’s Empire
Following the landmark acquisition of VMware, Broadcom has pivoted to a near-equal footing in semiconductors and software. Previously reliant on networking and communications semiconductors, Broadcom now commands a substantial software segment, signaling a transformative shift. The synergy with VMware’s hybrid cloud platform presents a tantalizing opportunity for exponential growth, a testament to Broadcom’s forward-looking strategy.
The Power of VMware’s Innovation
VMware’s trajectory showcases unprecedented growth post-acquisition, with revenue projected to surge double-digits sequentially throughout the year. Fueling this momentum is the VMware Cloud Foundation, a virtualized AI product that revolutionizes large enterprises’ data centers. Paired with a strategic partnership with Nvidia, VMware’s reach extends further into AI, amplifying its appeal to corporate giants seeking secure, on-premises AI solutions.
Broadcom anticipates its software division, encompassing Symantec, California Technologies, and VMware, to rake in over $20 billion in revenue this year, a significant leap from the $7.6 billion recorded in fiscal 2023.
Image source: Getty Images.
Broadcom’s Prowess in AI Segments
Beyond software, Broadcom’s AI hardware ventures exhibit meteoric growth. Dominance in networking semiconductors and custom ASICs tailored for AI applications positions Broadcom as an industry frontrunner. As cloud computing behemoths shift towards proprietary AI chips, Broadcom’s AI chip business is on a trajectory toward colossal revenue generation, projected to surpass $10 billion this year, constituting 35% of the semiconductor revenue for 2024.
Diversification and Strength in Broadcom’s Portfolio
While Broadcom’s AI business steals the spotlight, its other ventures anchored in cyclical growth sectors boast robust franchises and high margins. Collaborations with Apple for iPhone chipsets and a significant presence in broadband and wireless communications underscore Broadcom’s multifaceted grip on the tech industry.
A Leap Into the Elite Tech Sphere
Currently trading at around 26 times this year’s earnings estimates with a 1.7% dividend yield, Broadcom lies at the cusp of tech magnificence. A history of surpassing earnings projections and a diversified tech conglomerate status, courtesy of the VMware acquisition, propels Broadcom towards the echelons of the elite tech players. This augmented reach not only enhances Broadcom’s capabilities but also opens avenues for strategic acquisitions and sustained growth.
With a significant stake in the AI growth trajectory, Broadcom’s ascension into the ranks of the Magnificent Seven seems imminent, if not expanding the horizon to an Elite Eight.
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Billy Duberstein holds positions in Alphabet, Apple, Broadcom, Microsoft, and Netflix. His clients may hold shares in the mentioned companies. The Motley Fool holds positions in and endorses Alphabet, Apple, Microsoft, Netflix, Nvidia, and Tesla. Additionally, it suggests long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool upholds a disclosure policy.
The opinions expressed herein are solely those of the author and do not necessarily reflect the views of Nasdaq, Inc.
