Why You Shouldn’t Buy Shares of Broadcom Despite Stock Split: Focus on These 2 Factors Instead

Broadcom’s Stock Split Isn’t a Reason to Buy Shares: These 2 Reasons Are

Tech giant Broadcom (NASDAQ: AVGO) recently announced a 10-for-1 stock split scheduled for July 12. The news resulted in a surge of over 12% in Broadcom’s stock price to $1,700 per share the day after the announcement. While stock splits can make it easier for retail investors and employees to purchase shares, they don’t alter the fundamental value of the company, which currently stands at around $780 billion.

Despite the stock split, Broadcom offered compelling reasons for its post-earnings pop and continued ownership, particularly in two key areas.

VMware is a Home Run

Broadcom, historically known as a semiconductor company, now generates over 40% of its revenue from its software segment, thanks to the acquisition of VMware for $69 billion. Since the acquisition, Broadcom has been able to reduce costs and accelerate VMware’s revenue growth. In the fiscal second quarter of 2024, VMware saw a 29% increase in revenue, reaching $2.7 billion.

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Moreover, Broadcom’s introduction of vSphere, a platform that virtualizes all aspects of on-premises data centers, has been a significant success. Broadcom CEO Hock Tan predicts VMware’s revenue to reach $4 billion quarterly and aims to reduce operating expenses from $2.3 billion pre-acquisition to $1.2 billion, improving operating profits significantly.

Broadcom’s AI Products are Thriving

In addition to VMware, Broadcom’s AI product portfolio, including networking products and custom ASIC IP, has experienced strong growth. Last quarter, Broadcom’s networking category, which encompasses these products, surged 44%, constituting more than half of the company’s semiconductor revenue.

Broadcom’s success in the AI sector has solidified its position as a core tech holding, despite challenges in other segments like mobile chips, storage connectivity hardware, and broadband revenue. With AI revenue booming and non-AI segments expected to recover, Broadcom’s profits are set to surge in the coming months.

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Consider Investing in Broadcom

While Broadcom isn’t as cheap as it used to be, trading at around 40 times last quarter’s earnings, the prospects of continued growth in AI and software, along with the expected recovery in non-AI segments, make it an attractive investment opportunity. With profits expected to grow through the back half of the year, Broadcom’s stock may become more appealing on a forward earnings basis.

Considering Broadcom’s strong performance and promising future prospects, investors looking for growth opportunities in the tech sector should consider adding Broadcom to their portfolio.

Remember, before investing in any stock, it’s essential to conduct thorough research and consider your investment objectives and risk tolerance. Extreme Investor Network provides expert advice and insights for investors seeking opportunities in the financial markets. Stay informed and make informed investment decisions with Extreme Investor Network.