Artificial intelligence (AI) has been one of the hottest trends in the stock market recently, and companies focusing on this technology have seen significant gains. One such company is Broadcom (NASDAQ: AVGO), a semiconductor and infrastructure software company whose shares have surged over 130% in the last 12 months.
Broadcom is set to announce its fiscal 2024 first-quarter results on March 7, 2024, and investors are eagerly awaiting the news. The company’s recent success can be attributed to two key factors: generative AI and its acquisition of VMware. Generative AI revenue accounted for roughly 20% of Broadcom’s semiconductor revenue in the fourth quarter of fiscal 2023, and the company expects this contribution to grow to over 25% in fiscal 2024. Additionally, the acquisition of VMware is expected to boost Broadcom’s revenue by 40% year over year to around $50 billion.
Wall Street analysts are optimistic about Broadcom’s upcoming earnings report, with revenue estimates ranging from $11.7 billion to $12.6 billion for the first quarter. Similarly, the average adjusted earnings per share (EPS) estimate is $10.29, with a wide range of estimates from $9.02 to $11.50.
While Broadcom may beat Wall Street’s estimates and see a surge in its stock price following the earnings announcement, some caution is warranted. The company’s current valuation, with a forward earnings multiple of over 30x, may not be compelling enough for investors to buy shares hand over fist at this time. There are other AI stocks on the market that may offer more attractive risk-reward propositions.
In conclusion, while Broadcom has seen impressive gains and may deliver strong earnings results, investors should carefully consider the company’s valuation before making any investment decisions. It’s essential to weigh the potential upside against the current price of the stock and assess whether there are better opportunities in the AI sector. As always, it’s crucial to conduct thorough research and consult with a financial advisor before making any investment decisions.
