Broadcom’s (AVGO) sky-high stock price is now a thing of the past. The recent split of AVGO stock may have you wondering if it’s time to claim your stake in the fast-growing artificial intelligence chip market.
To help you answer that question, let’s explore the details of Broadcom and its recent stock split. We’ll cover the company’s position in AI, its financial performance, what analysts are saying and the pros and cons of owning AVGO. I’ll conclude with my opinion on Broadcom as a long-term holding.
Broadcom’s Stock Split Details
On the heels of the 50-for-1 Chipotle stock split, Broadcom has lowered its per-share price with a 10-for-1 exchange. Prior to the split, AVGO stock was trading for about $1,600 per share. After the split was implemented on July 12, you could buy Broadcom for less than $170. (Shares started trading on a split-adjusted basis on July 15.)
Broadcom announced the split in June when it posted earnings for its second fiscal quarter. AVGO stock shares rose about 10% in extended trading that day, according to CNBC.
Broadcom’s Position in the AI Industry
Broadcom designs and sells semiconductor chips and software. The company specializes in application-specific integrated circuits or ASIC chips, which are customized for a specific purpose.
The AI boon has been good for Broadcom. According to JPMorgan analyst Harlan Sur, Broadcom owns the second market share position in AI chips after Nvidia (NVDA) and the top share position in ASIC chip designs. Sur estimates the size of the ASIC chip market at $20 billion to $30 billion and growing, with Broadcom owning an estimated 55% to 60% market share.
Notably, Broadcom has inked AI ASIC chip deals with both Alphabet (GOOGL) and Meta Platforms (META), two best stocks in their own right.
Financial Performance
In its latest earnings release, Broadcom reported consensus-beating revenue of $12.49 billion and non-GAAP EPS of $10.96. Revenue growth versus the prior-year quarter was 43% and EPS grew 6%.
A primary contributor to Broadcom’s quarterly growth was the completion of its VMWare acquisition in November 2023. Excluding VMWare, AVGO’s quarter-over-quarter revenue growth was 12.5%.
Note that Broadcom’s GAAP EPS declined almost 46% in the second fiscal quarter versus the prior year. Amortization of acquisition-related intangible assets, a noncash expense, was the largest factor. The non-GAAP figure also excludes:
Stock-based compensation
Restructuring
Losses on debt extinguishment
Investment gains and losses
Income from discontinued operations
Today’s Broadcom was formed when the company was bought by its rival Avago Technologies Limited in 2016. The transaction, which valued Broadcom at $77 billion, created one of the world’s largest semiconductor companies. The combined company kept Broadcom’s name and Avago’s ticker.
Since 2017, AVGO has steadily grown its trailing 12-month (TTM) revenues from about $15 billion to $42 billion. In 2024, AVGO’s market cap is $788 billion.
Market Reaction To AVGO’s Stock Split
Based on AVGO stock price trends, the market responded positively to Broadcom’s earnings release, which included the split announcement. Investors also showed their support by pushing up the stock price in the days before the split was implemented.
Post-split, the stock rose to close at $169.38 on July 16. Unfortunately, on July 17, Bloomberg broke news that the Biden administration wants to limit China’s access to American technology. Less than a month ago, Reuters had reported that Broadcom was designing AI chips for China’s ByteDance, the owner of TikTok.
The regulatory news shut down any post-split run for AVGO, with the stock closing 7.9% lower versus the previous day. Nvidia, Taiwan Semiconductor (TSM) and ASML Holding N.V. (ASML) were also down—so it was a tough day for the best AI stocks.
Analyst Opinions on AVGO Stock
The consensus price target on AVGO is $194.13. From a starting price of $156, that implies an upside of 24.4%. TradingView reports 46 analyst recommendations as follows:
30 strong buy ratings
Eight buy ratings
Eight hold ratings
On June 18, Morningstar reported a fair value estimate for AVGO of $1,550 or $155 adjusted for the stock split. This is slightly below the stock’s current price. Analyst William Kerwin, CFACFA
, says Broadcom has a significant opportunity in AI chips, but he believes the stock price already reflects that upside.
Possible Benefits Of Investing In Broadcom Post-Stock Split
The main benefit of investing in Broadcom is the exposure to the AI chip market within a somewhat diversified revenue model. Broadcom also owns software company VMWare, which supports enterprises that are building and developing in private cloud environments. Additionally, the company makes products for server storage and enterprise networking.
In Broadcom’s second-quarter earnings release, President and CEO Hock Tan noted rising demand in AI as well as strength in VMWare. But that isn’t the full story. Broadcom’s legacy business also showed improvement. According to Hur, Broadcom’s bookings outside of AI and VMWare have been up double digits for two consecutive quarters.
The takeaway? Relative to Nvidia, the other dominant AI chip designer, Broadcom is less reliant on continued high demand for AI hardware. The stock split doesn’t change that dynamic. The main benefit of the split is the lower AVGO share price so that it is easier to fit into your investing budget.
Risks And Considerations
Two primary risks to consider before investing in AVGO are its valuation and the potential for near-term volatility in AI chip demand.
From a valuation perspective, AVGO’s trailing P/E ratio is 67.2, which is very similar to NVDA’s trailing P/E of 69.04. AVGO’s forward P/E and PEG ratios are slightly more reasonable at 25.97 and 1.15, respectively. NVDA’s forward P/E is 45.05 and its PEG is 1.34. Neither stock is a bargain, but AVGO may be a slightly better deal.
Broadcom’s position in the AI chip market can be a boon or a bust for shareholders. Researchers generally predict continued strong demand for AI-capable chips at least through 2030. But there’s always the chance for short-term pullbacks related to supply chain issues, economic recession or regulatory changes that affect the business case for AI development. Those situations are likely to be temporary, but AVGO’s stock could take a hit as a result.
This near-term volatility is not necessarily a deal breaker for owning AVGO, however. Take it as a reminder to be strategic about how much you invest and what your diversification strategy is.
Long-Term Growth Prospects
Analysts expect AVGO to deliver 13% GAAP EPS growth this year and 26.8% growth next year. The average annual EPS growth expectation for the next five years is 17.8%, as reported by Yahoo Finance.
So, Is Broadcom An AI Stock To Buy Now?
For investors who don’t own Nvidia, Broadcom is a long-term buy. The company’s dominant position in the growing AI ASIC chip market is attractive. And it looks even better when you consider the revenue diversification from AVGO’s cloud software business VMWare.
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