Artificial intelligence (AI) has driven the revenue and stock price growth of many technology companies in recent times. Investors are piling into these players who are benefiting from the AI ​​boom now and could have even more to gain down the line. After all, analysts predict that today’s $200 billion AI market could cross the $1 trillion mark by the end of the decade.
Broadcom (NASDAQ:AVGO) is one of the players benefiting from the move. The semiconductor and networking giant has seen demand rise, helping its share price rise more than 60% since the start of the year. But Broadcom just announced a move that will soon bring its high-flying stock down to earth. The tech company plans a stock split next month, an operation that will lower its stock price from more than $1,800 today to about $180.
Now the question is: should you buy Broadcom now or wait to get into this AI player after the stock split? Let’s find out.
Why Broadcom is a good buy
First, some background on Broadcom itself and why the company is a good buy overall. Broadcom makes a wide range of semiconductor and infrastructure software products. In fact, the company produces thousands of products used in various fields, from data center servers to smartphones. More than 99% of Internet traffic passes through Broadcom’s technology, a statistic that demonstrates the company’s important role in networking and connectivity. Broadcom continued to expand its revenue capabilities and recently completed the acquisition of cloud computing software company VMware.
In its most recent quarter, Broadcom reported a 43% increase in revenue to over $12 billion. And AI revenues, driven by demand for AI networks and custom accelerators, rose 280% to $3.1 billion. During the quarter, Broadcom doubled the number of switches sold and the company is developing next-generation switches, optics and other tools that will support the networking needs of AI data centers in the coming years.
Broadcom has a positive track record and has grown revenues and profits to billions of dollars over the years. And this year, thanks to VMware integration and demand for AI, the company increased its full-year revenue guidance to $51 billion – representing a 42% increase over last year’s revenue levels.
Everything about the Broadcom stock split
So Broadcom is a buy, but should you act on the stock today or after the split? A stock split is a mechanical move to lower the price of each individual share by issuing more shares to current holders, but it does not change the overall market value of the company or the stock’s valuation. Broadcom plans a 10-for-1 stock split, so if you own one share, you’ll receive an additional nine after the market closes on July 12. The stock will begin trading at its split-adjusted price on July 15.
Broadcom could actually be more expensive after the split if its shares continue to rise. The stock is already up about 20% since the company announced the operation, boosting its valuation. Today, Broadcom trades for 37 times forward earnings estimates, up from levels of around 25 earlier this year. But given Broadcom’s AI growth and VMware’s contributions, the price still seems very reasonable at current levels.
Of course, it is impossible to predict daily stock movements. Broadcom could also decline from now on due to the stock split and ultimately trade at a lower valuation after the split.
What should you do? Keep in mind that when investing for the long term, short-term price movements will not have a major impact on your returns. A 20% gain or loss over the next few weeks won’t matter if the stock shows upside over the next five to 10 years.
It’s true that if you have, say, $200 to invest in Broadcom, buying after the split may be easier because you’re buying an entire share instead of investing in fractional shares — especially if your brokerage doesn’t offer fractional shares. But if your budget right now is equal to the price of one full share or more, there’s no reason to wait for the split to hit this top AI stock. It’s a great purchase today.
Should You Invest $1,000 in Broadcom Now?
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Should you buy Broadcom now – or after the stock split? was originally published by The Motley Fool
