- The stock price is showing consolidation after a 20% surge following strong Q2 FY2024 earnings, due to significant expansion in valuation multiples.
- The company grew only 12% YoY in Q2 FY2024 and 11% YoY in Q1 FY2024 in organic total revenue, excluding VMware’s revenue contribution, up from high single-digit growth in FY2023.
- Revenue growth for AVGO is largely driven by VMware, with impressive Infrastructure Software growth and potential for nearly 100% YoY growth in 1Q FY2025E.
- AI-related revenue has increased 280% for Broadcom, but the segment remains at 25% of its total revenue in the last quarter.
- The company’s net income margin has been declining, with mid-single-digit non-GAAP EPS growth over the past three quarters.
Georgijevic
Investment Thesis
Broadcom Inc. (NASDAQ:AVGO) recently surged 20%, driven largely by a strong Q2 FY2024 earnings report. Like other semiconductor stocks, AVGO has seen significant price jumps due to the GenAI tailwinds, which is driving tremendous demand for Ethernet solutions and custom AI accelerators. The company has shown a strong rebound in revenue growth in the past two quarters and continues to accelerate its momentum.
The company has already reached a revenue growth inflection point, leading to a doubling of its stock price in the last 12 months. While it trades at a premium valuation similar to other semiconductor stocks, last week’s 10% pullback may suggest a consolidation. I understand that recent price moves might be due to momentum, especially seen after the announcement of a 10-1 stock split. Therefore, I’m issuing a hold rating after the recent pullback as the price could potentially decline further given its current valuations.
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