저자: Zach · 외국인
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브로드컴은 과거 저평가 배당성장주였으나 2023년 VMware 인수 후 AI 기대로 주가가 약 200% 급등, 과대평가됐다고 봄. 매출 130억달러(+47%)는 대부분 VMware 인수 효과이며 부채는 250억→640억달러로 증가, 마진 하락. AI 매출은 네트워킹 중심으로 엔비디아 대비 경쟁력 약함. 2024 Q2 실적 후 매도했고 Q3 실적 후 시간외 주가 약 65% 하락(목록상 22%대 조정). 자신은 보유 권유 없이 관망적 시각.
다듬은 글
over the past decade broadcom has been an undervalued dividend growth machine however once the AI boom happened in 2023 broadcom stock price soared nearly 200% personally I believe much of this has been unjustified by the fundamentals in fact I sold out of my broad composition at large gains after the Q2 earnings report in June 2024 and just today broadcom stock reported Q3 earnings and much of the reasons why I sold at Q2 are still in play today I think broadcom went from being a deeply undervalued company to a highly overvalued stock and despite beating their Q3 earnings expectations on both earnings per share and revenue the stock price is down over 65% after hours that would bring the price of broadcom stock down over 22% from its recent all-time high
Broadcom has been an undervalued dividend growth machine over the past decade, but once the AI boom arrived in 2023, the stock soared nearly 200%. Personally, I believe much of that rise is not justified by the fundamentals. I sold my Broadcom position at a large gain after the Q2 earnings report in June 2024, and many of the reasons I sold then are still in play today.
Broadcom went from a deeply undervalued company to a highly overvalued stock. Even though it beat Q3 earnings expectations on both EPS and revenue, the stock fell more than 6.5% after hours, which would bring it down more than 22% from its recent all-time high.
In today's video I'm going to analyze Broadcom's latest earnings report and explain why the stock is selling off. Finally, I'll share why I think Broadcom is not the AI stock many people think it is. Let's roll the intro. My name is Zach, this is Dividend Data, and if you enjoy the video, please leave a like and subscribe to the channel. If you want help finding better dividend stocks, please sign up for my free email newsletter.
Broadcom, ticker AVGO, was priced at $152 per share before today's earnings release. Its GAAP EPS over the trailing 12 months was $2.33, giving it a P/E of 65.5. To be fair, its non-GAAP EPS over the trailing 12 months would be closer to $4.40, giving it about a 35x P/E. The current annual dividend per share is $2.10, a 1.37% dividend yield, and the company is valued at $711 billion. I've covered Broadcom many times on the channel.
The company has evolved significantly over time, and the latest big change was the acquisition of VMware in 2023. In fiscal 2024 this has started being folded into the business, and infrastructure software now represents around 40% of total revenue, with semiconductor solutions representing around 60%. Much of that semiconductor business is unrelated to AI. The only AI-related parts are in the networking side, including ethernet switching and routing, which are required for building out large hyperscale data centers, so they have seen big demand increases there. However, their other large semiconductor businesses in broadband, wireless, industrial, and storage have actually been declining recently.
Let's break down the latest quarter. Revenue came in at $13 billion, up 47% from the prior year period. That seems great, but there is a massive caveat in that number: virtually all of the revenue increase comes from the VMware acquisition. VMware was a public company, and in fiscal 2023 it had $13.3 billion of annual revenue. So when you look at the year-over-year growth rates for these financial metrics, keep in mind that the vast majority of the gains come from the VMware acquisition, and that did not come at no cost.
In fact, Broadcom's balance sheet has gotten far worse as a result. Net debt went from $25 billion to $64 billion. They now have $9.8 billion of cash and $74 billion of total debt. Their shares outstanding increased slightly, and their margins declined as they absorbed the lower-margin VMware business. Gross margins fell from 68% to 56%, and net margins fell from 38% to 16.9%. So yes, some financial metrics show large year-over-year growth, but not without a cost.
In the quarter they had a GAAP net loss of $1.8 billion. In my opinion this is not financially notable, because it comes from a non-cash tax provision of $4.5 billion, which has nothing to do with the cash coming in and going out of the business. Non-GAAP net income came in at $6.1 billion for the third quarter, which was very strong. Cash from operations was $4.9 billion, less capital expenditures of $172 million, resulting in $4.7 billion of free cash flow, or about 37% of total revenue.
One thing I loved about Broadcom is how much free cash flow it generates. As a chip designer that outsources manufacturing to third-party fabs, it doesn't have to continually invest in highly expensive semiconductor manufacturing. Historically this has made Broadcom a free cash flow machine, and that's why I loved the stock. It could rake in about $4 billion a quarter to put toward dividends and its next big acquisition, a proven strategy that led to continued growth.
The good news is that Broadcom is guiding for continued growth, projecting approximately $14 billion of revenue for Q4. Again, much of that comes from VMware. I suspect growth excluding VMware would be closer to 10% year over year. But the VMware acquisition is not why the stock is up. It's entirely about the AI story, and that is not what I think many people think it is.
CEO Hock Tan, whom I like and think has done a fantastic job throughout his career, said that for the quarter, Broadcom's third-quarter results reflect continued strength in our AI semiconductor solutions and VMware. He said, "We expect revenue from AI to be $12 billion for fiscal year 2024, driven by Ethernet networking and custom accelerators for AI data centers." I'll repeat that: driven by Ethernet networking and custom accelerators for AI data centers. That is their networking business, which has been one of their semiconductor segments for a while, but it has seen ample growth in recent years due to AI data center demand. They have now renamed it AI semiconductor solutions, when really it is their networking business. So I would not say they are a leader in AI. At best, as they say in some presentations, they are enabling AI infrastructure with their products.
The bright spot is that Broadcom was a leader in Ethernet and networking before the AI boom, so it has the advantage of existing customer relationships and a wide suite of products in use. The company is focusing heavily on this use case because that's where the money is right now, helping design various AI accelerators and other products to secure its place in the data center. It's true that networking is extremely important in large data centers. But when you look at Broadcom as a whole, there are a couple of major things to focus on. First, this used to be a small part of the semiconductor business, which is only 60% of the entire company. In 2023 it was 15% of semiconductor revenue, and in 2024 it will be over 35%. It is seeing significant growth, but part of the story is that other semiconductor businesses like wireless and broadband are declining this year too. From an investor standpoint, this is a high-growth business within semiconductors, and I think it will keep growing in the coming years. However, I do not think they have any unique competitive advantage in the space. I'm not an expert in networking, but when you compare Broadcom to a company like Nvidia, it's not even close. Nvidia is more of an AI story and is in a far stronger competitive position in AI data centers. Its business has become almost entirely about the data center, it is incredibly high margin, and it has bundled package solutions in the H100, H200, the upcoming Blackwell, and various other products. To be honest, it's almost insulting to put Broadcom in the same breath as Nvidia when talking about investing in AI.
Over the past year and a half, Broadcom has earned an AI premium in its price, but it has not come close to the earnings and business growth of companies like Nvidia. Its free cash flow per share has actually been declining, and in my opinion much of the stock price growth has been unjustified, which is why I sold. But Broadcom is still a great company. If you bought it a while ago and want to keep holding it and reinvesting dividends, there's nothing wrong with that. I'm not trashing your investment. I just find it interesting how it went from a deeply undervalued company to an overvalued stock all of a sudden.
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