Meet the stock splits that are up 10,610% over the past 15 years. It is set to join Apple, Nvidia, Microsoft, Amazon, Alphabet and Meta in the $1 Trillion Club in 2025.
Recent developments in artificial intelligence (AI) illustrate that technology has come to dominate over the past two decades, with technical issues topping the list of the world’s most valuable businesses. That wasn’t always the case. Just twenty years ago, General Electric And ExxonMobile were the leaders in terms of market capitalization, with a value of $319 billion and $283 billion respectively.
Today, technology rules. Apple, NvidiaAnd Microsoft are each worth more than $3 trillion and would top the rankings sometime in 2024. Other big tech members of the $1 trillion club are also household names, including Amazon, AlphabetAnd Metaplatformswith valuations between $1.5 trillion and $2.3 trillion.
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With a market capitalization of approximately $797 billion (at the time of writing), Broadcom(NASDAQ:AVGO) seems like a bull’s-eye for membership in this exclusive fraternity. The company provides a wide range of products that are critical components in data center infrastructure, where most AI processing takes place, and its indispensable technology could be the fuel that powers Broadcom’s successful quest for membership.
Image source: Getty Images.
Broadcom is not only one of the world’s leading custom chip manufacturers, but also offers a host of complementary products and services in the mobile, cable, broadband and data center segments. The company states that “99% of all Internet traffic passes through some form of Broadcom technology.” This expanded reach illustrates why Broadcom’s technology is a critical part of the generative AI ecosystem, as the technology lives primarily in the cloud and data centers.
Beyond AI, investors continue to underestimate the opportunities presented by Broadcom’s purchase of VMWare late last year. During the recent earnings call, management noted that “VMWare bookings continue to accelerate,” reaching $2.5 billion in the third quarter, up 32% sequentially.
Additionally, the company continues to reduce VMWare spending. CEO Hock Tan noted that with the VMWare integration progressing as expected, Broadcom was on track to achieve its target of $8.5 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 2025. Once the process is complete, the company expects to realize greater margins and higher profits.
The results highlight an intriguing opportunity. For the third fiscal quarter (ended August 4), Broadcom posted revenue of $13.1 billion, up 47% year over year, while adjusted earnings per share (EPS) rose 18% to $1.24. Management expects this upward trajectory to continue, raising full-year revenue guidance to $51.5 billion, representing growth of 44%.
This adds to Broadcom’s long history of strong business and financial performance, which has fueled its rising stock price. This in turn led the company to declare a 10-for-1 stock split earlier this year, which it completed in July.
Broadcom’s chips and complementary products – critical components in data center operations – give the company an important role in delivering the AI ecosystem. Broadcom is in an enviable position, which will be a key driver in the next phase of its growth.
Wall Street expects Broadcom to generate revenue of $51.7 billion in 2024, giving it a forward price-to-sales ratio (P/S) of around 15. If the stock’s price-to-earnings ratio remains constant, Broadcom should generate revenue of about $65. billion per year to support a $1 trillion market cap.
Analyst consensus estimates call for revenue growth of 44% in 2024 and 17% in 2025. If the company meets these targets, it will likely reach a market cap of $1 trillion by mid-2026. That said, I believe Wall Street’s growth estimates are conservative, as Broadcom has exceeded analyst expectations in each of the last three quarters. It is therefore not unreasonable to expect more of the same in the coming year.
Accelerating AI spending and growing adoption of VMWare should give Broadcom multiple avenues for robust growth next year. Therefore, I think 2025 is a more likely time frame for the company to join the trillion-dollar club.
Management observations seem to support this, as Broadcom is “experiencing strong demand from hyperscalers for both AI networks and custom AI accelerators.” Furthermore, commentary from the world’s largest cloud infrastructure providers suggests that demand will not slow down in the near future.
Estimates for the size of the AI market continue to rise, but even the more conservative estimates are compelling. Generative AI is expected to be a $1.3 trillion market by 2032, according to Bloomberg Intelligence. McKinsey & Company estimates the economic impact at between $2.6 trillion and $4.4 trillion per year. While no one knows for sure how big the AI opportunity will ultimately be, most experts agree that it will a lot of higher than today.
Despite Broadcom’s impressive earnings, the company remains attractively priced and is currently selling for just 27 times forward earnings, compared to a multiple of 30 for the company. S&P500. That’s not a bad price for a stock that has delivered a total return (including dividends) of 14,500% since 2009, especially when you compare it to a gain of just 633% for the broader market.
That’s why Broadcom stock is a buy.
Consider the following before buying shares in Broadcom:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and GE Aerospace and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
Meet the stock splits that are up 10,610% over the past 15 years. It is set to join Apple, Nvidia, Microsoft, Amazon, Alphabet and Meta in the $1 Trillion Club in 2025. was originally published by The Motley Fool
