Bull of the Day: Broadcom (AVGO)

Broadcom Company Overview

Zacks Rank #1 (Strong Buy) stock Broadcom (AVGO) manufactures and sells semiconductors that are used in a range of technology products, such as smartphones, AI data centers, and the automotive industry, to name a few. Semiconductor solutions accounted for roughly 60% of 2024 revenues.

AI-Related CapEX Remains Strong

While the names of companies may come and go, and each moment in history on Wall Street is unique, every bull cycle has an underlying theme. That is, one growth industry that drives so much growth that it can lead the market up and down. For instance, in the late 19^th and early 20^th century, the key industry was railroads. The innovation was so novel and game-changing that it produced the most growth, profits, and speculation. The late 1990s saw the internet craze lead the US stock market higher and ultimately lower.

Today, that industry is artificial intelligence. Grand View Research predicts that the global AI market will balloon to more than $1.8 trillion over the next five years, racking up a compound annual growth rate of ~35%. CapEx, or Capital Expenditure spending mostly from America’s cash-rich big tech companies, is the key to determining AI growth and, thus, Broadcom’s potential earnings growth. As earnings season hits its stride, Broadcom and other big tech companies are receiving welcome news on the CAPEX front:

·       Alphabet (GOOGL) reiterated its gargantuan CapEx guidance.

·       Meta Platforms (META) hiked their already massive CapEX projections.

·       Microsoft (MSFT) reiterated CapEx guidance.

Semiconductor Restrictions

Restrictions on sending semiconductors overseas are an equally big threat to the semiconductor business. Yesterday, the Trump White House eased some of those concerns when it said it is considering easing restrictions after Nvidia (NVDA) and other semiconductor juggernauts pushed for rule changes.

AVGO: Expect Big Earnings Growth

Broadcom benefits from robust demand for its networking products and custom AI accelerators (XPUs). Last year, AI revenues bolted 220% year-over-year. Meanwhile, Zacks Consensus Estimates suggest that AVGO will grow 42.73% this quarter, and 35.52% for full-year 2025.

Image Source: Zacks Investment Research

Broadcom Announces Massive Buyback Program

During last quarter’s earnings conference call, AVGO management announced a massive $10 billion buyback. Share buybacks are bullish because they reduce the supply of stock available in the market, often leading to higher share prices.

AVGO is a Perennial EPS Winner

AVGO has not missed Wall Street estimates in at least 5 years.

Image Source: Zacks Investment Research

Bottom Line

Fueled by explosive AI growth, strong CapEx spending from tech giants, and a gigantic share buyback program, Broadcom is well-positioned to capitalize on the AI revolution.

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This article originally published on Zacks Investment Research (zacks.com).

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