Contemplating the Purchase of Broadcom Shares Prior to September 5th?
Broadcom's shares have soared an impressive 43% in 2024, outperforming the PHLX Semiconductor Sector index. This stellar performance can be attributed to the company's consistent quarterly results and the surging demand for its custom chips, boosted by the role of AI in its business.
In June, Broadcom announced it was on track to rake in over $11 billion in revenue from AI chips sales in 2024. However, this figure might be on the conservative side, considering the impressive 280% year-over-year growth in AI revenue in the previous quarter. Investors who haven't jumped on the Broadcom bandwagon yet might want to consider doing so before its third-quarter earnings report on September 5.
Broadcom's Q3 Earnings Report: What to Expect
Broadcom will release its third-quarter earnings on September 5, post-market close. Analysts predict $1.20 per share in earnings and $12.96 billion in revenue, suggesting a 46% year-over-year increase in the top line, primarily due to the acquisition of VMware.
While these estimates are impressive, Broadcom has a history of beating Wall Street's earnings expectations in the last four quarters. Moreover, in its last earnings report, the company raised its fiscal 2024 revenue forecast to $51 billion from the previous $50 billion, driven by stronger-than-expected AI chip demand.
Broadcom's AI division has been a major driver of its growth. The company designs custom AI processors, known as application-specific integrated circuits (ASICs), which are being deployed by tech giants for AI model training and deployment. Simultaneously, Broadcom's networking business has experienced an AI-driven boost, with the ethernet switches demand surging to cater to the growing need for fast connectivity in data centers for AI workloads.
The $150 Billion AI Opportunity: Is Broadcom's Stock Worth the Investment?
JPMorgan's Harlan Sur forecasts that Broadcom's cumulative AI revenue opportunity over the next four to five years could reach an unprecedented $150 billion. This potential revenue surge could boost Broadcom's semiconductor revenue by 30% to 40% annually.
Broadcom's semiconductor business contributes 58% of its revenue, generating $7.2 billion in Q2. AI chips accounted for 43% of this revenue in the second quarter. Given the potential $150 billion AI revenue opportunity, Broadcom's semiconductor revenue growth trajectory is promising.
Broadcom's valuation multiples, at 17 times sales and 72 times earnings, are currently high. However, its forward earnings multiple of 27 suggests that the stock's bottom line is poised for significant growth. The PEG ratio, a forward-looking valuation metric, stands at 0.76, considered attractive for stocks exhibiting strong growth prospects.
Broadcom's share price looks expensive based on its current valuation multiples. However, given its growth potential and the broader AI market boom, it may be worth holding for the long term. Investors looking to add a growth stock to their portfolio might find Broadcom an attractive option before its upcoming earnings report, especially if they expect a strong set of numbers that could propel the stock higher.
After observing Broadcom's impressive 280% year-over-year growth in AI revenue in the previous quarter, some investors might consider investing in Broadcom's shares before its third-quarter earnings report, anticipating further positive financial developments. As JPMorgan's Harlan Sur forecasts, Broadcom's AI revenue opportunity over the next few years could reach an unprecedented $150 billion, potentially boosting its semiconductor revenue by 30% to 40% annually.
