Is It Too Late to Buy Broadcom Stock? | AVGO Stock Earnings

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Broadcom just announced their latest quarterly results, and it's no surprise that it was another excellent quarter . Moreover, good guidance was also provided, which is why the stock rose 13% by the time this video was made . It has now reached an all-time high at $204.5 per share. The stock is up nearly 70% since the start of the year, and we are heading towards the $1 trillion mark in terms of market cap .

Furthermore, Broadcom is also a company that pays a low dividend. I believe they increased the dividend by 11% . So, there's that thing too . I think this is a good dividend stock to own . Now, looking at what analysts expect from this company in after-hours trading and in fiscal 2025 and 2026, in terms of EPS , it is now trading at a forward PE of 33 times, rather than 30.6 times .

For scientific purposes, the average analyst price target before the earnings announcement was $193.39. I certainly hope that number increases when the market opens tomorrow . While Broadcom is an excellent company , it's important to know that it is now trading at a higher price multiple when compared to its 5-year average.

Forward PE, EV to EBITDA, price to sales, price to free cash flow are all well above the 5-year average . The price earnings to growth (PEG) is still good, at around 1.5 . But, you have to take into account that they own VMware , so they are growing very fast . There's this whole AI aspect to the business , so you're getting a higher premium than ever before .

So, what exactly happened this quarter? Let's take a look at all the important numbers and comments from management. If you like such videos , give it a thumbs up, and subscribe if you haven't yet, we really appreciate it . If you want to support me further , check out the link in the description and pinned comment, Top 10 Best Stocks to Buy Right Now, or go to full.com {forward slash} couch investor.

Thank you very much. Okay, but let 's start here with some comments . Broadcom 's fiscal 2024 revenue grew 44% to a record $51.6 billion , with infrastructure software revenue growing to $21.5 billion with the successful integration of VMware . I know what a lot of people say, "Oh, this company just buys other companies and grows like that." Yes, it has acquired several companies over the past few years , but it is one of the few companies that can make large acquisitions and successfully integrate them into their business.

They further said, " Semiconductor revenue reached a record $ 30.1 billion, with AI revenue of $12.2 billion . AI revenue grew 220% year-over-year , driven by our leading AI XPUs and Ethernet networking portfolio . In fiscal 24, adjusted EBITDA increased 37% year-over-year to a record $31.9 billion, and free cash flow excluding restructuring was strong at $21.9 billion.

Based on the increased cash flows in fiscal 2024 , we are increasing our quarterly common stock dividend by 11 % for fiscal 2025, to 59 cents per share . The annual common stock dividend target for fiscal 2025 is $2.36 per share, a record and the 14th consecutive annual increase since inception in fiscal 2011.

Therefore, net income increased 51% for the quarter." Over $14 billion . Net income increased $800 million to $4.32 billion. This is all calculated on a GAAP basis . And earnings per share were at 90 cents , up 7 cents year-over-year . Cash flow from operations was $5.6 billion , up $776 million year-over-year.

Adjusted EBITDA was over $9 billion , up a little over $3 billion year-over-year. And free cash flow was up $759 million to $5.482 billion , which I believe was a little less than analysts had expected . At least, that's the numbers I've seen. In terms of the two revenue segments , we have Semiconductor Solutions and Infrastructure Software.

So, Semiconductor Solutions has a 59% share and Infrastructure has a 41% share . Semiconductor Solutions $8.23 billion , up 12% year-over-year . And the infrastructure segment grew 196% . In fact, that was driven by VMware , which reported $5.82 billion. There have been a few news stories in the past few days .

First, here's one thing that could have a negative impact on Broadcom . According to a Bloomberg report, Apple is switching away from Broadcom components for its iPhone home wireless chip . The chip, codenamed Proxima, is under development and is set to enter first production in 2025. The report, citing people familiar with the matter, said Proxima will be manufactured by partner TSMC .

Earlier, another report said Apple is working with Broadcom on an AI server chip. Apple is working with semiconductor company Broadcom on its first server chip designed to handle AI applications . Citing three people familiar with the project, The Information has reported that Apple designs its own ‘ Apple Silicon’ chips for its devices and has them manufactured primarily by TSMC , but they are not designed for AI processing .

That’s where Apple’s new server chips, internally called ‘ Albatross’ , come in. A source told The Information that Broadcom and Apple are focusing on the networking technology of the chips , which is crucial for connecting a device to a network for AI processing . The company aims to complete the chip design within 12 months .

Now, with a lot of AI processing or AI applications happening directly on the device, rather than in a data center somewhere, things like this are happening more and more. Honestly , I think we’re going to see a lot more custom silicon being made in the future . Custom chips, we’re already seeing that today, right ?

Basically, every big hyperscaler , every big tech company is designing their own chips . Yes, This is also a bearish argument when it comes to Nvidia . But on the other hand, there is enough demand and Nvidia is probably still far ahead of the competition. But in the case of Broadcom, this has been a major theory for a long time .

I personally do n't own Broadcom shares, but I've been watching this company very closely, especially this year, when the stock price was low, because there was a good opportunity there. They are in a good position . They are well-positioned because of all the big tech companies wanting custom chips, and also because of the benefits they have in terms of networking .

So, if we look back a little bit, we can clearly see how fast this business is growing. We can also clearly see what happened before and after the VMware acquisition. So, this is the first quarter where we are seeing a big impact from VMware, and that impact is still growing . What do you expect in terms of revenue and free cash flow in the coming quarters ?

We've already seen what we can expect in terms of revenue in the next two fiscal years , but what about free cash flow? So, when it comes to free cash flow for this quarter , you As you can see , the expected number is a little over $6.1 billion. It actually came in at less than $6 billion , but free cash flow is expected to grow much faster in the coming quarters .

46.9% in the first quarter of fiscal 2025, then another 60.9% and then 63.1 %, but that’s certainly on a low base . The last thing here, these are comments from the CEO , just released to the press. Broadcom CEO Hock Tan outlined a huge AI opportunity, predicting that there will be a $60 billion to $90 billion semi-total addressable market for AI by fiscal 2027, driven by three hyperscalers.

TikTok parent ByteDance , Google’s Alphabet, and Meta are each setting up 1 million accelerator clusters . He also confirmed that Broadcom has signed deals with two other hyperscalers, including OpenAI and Apple is expected to have them , which are expected to be in place by 2027. For the first quarter of fiscal 2025 , AI semiconductor revenue is expected to be $3.8 billion.

That’s up 65% year-over-year, while non-AI semiconductor revenue is expected to be down about 15% year-over-year. Infrastructure software revenue is expected to be up about $700 million from the previous quarter to $6.5 billion , with some deals being pushed into the quarter . And in a significant change, Broadcom is now planning to report AI and non-AI semiconductor revenue separately .

Of course, this makes sense given the increased focus on AI . Finally, regarding first-quarter revenue, they expect it to be $14.6 billion and adjusted EBITDA to be about 66% of expected revenue . Now, with all that in mind , let’s take a quick look at the trailing 12-month free cash flow and do a quick reverse If you do DCF, it means that to justify the price at the end of the market, the free cash flow would have to grow by 14.1% over the next 10 years.

So, yes, we know that it will grow much faster than that in the next two quarters. But after that, it will probably come down and come back to a more realistic level . So, 14.1% seems very high to me right now . Very high. If they continue at the pace they are at now , it could certainly be justified .

Then, maybe it could be . But, from a risk- reward perspective, it looks less justified now than it did a few months ago when it was at $130-140 . Again, things could change. They could attract more big clients, and that would certainly boost revenue and free cash flow. Then, free cash flow growth could continue to be above 14% in the future.

And, what do you think ? Let me know in the comments section below. Right now, we are at all-time highs. So, that's basically the picture you're looking at . What's Friday? Depending on what happens, we'll be here at the beginning. We've seen some really great rallies on the 200-day moving average on August 5th, which was the day of Black Monday, and then a few weeks later, it was a big opportunity for those who bought into the dip.

I know we did some videos about Broadcom back then, so I'm sure many of you have those shares in your portfolio now , so congratulations. But, yeah, it's uncharted territory right now, at all- time highs . Broadcom is still one of the big winners for years to come in my view. Do I want to invest now at new all-time highs ?

Probably not, but if you already own shares, congratulations, you're also getting dividends and you can enjoy having a very strong and well- positioned company in your portfolio . So, that's it. Share your thoughts in the comments section below , like, Subscribe, do them all, see you in the next video. Bye- bye.