Shares of Broadcom (NASDAQ: AVGO) were lightning fast last month, rising 21% in June, according to data from S&P Global Market Intelligence.
The semiconductor specialist posted robust financial results and made an announcement that improved investor confidence.
A beat and raise thanks to the AI ​​revolution
Early last month, Broadcom kicked off the festivities with results for its fiscal second quarter, which ended May 5, and investors cheered. Revenue grew 43% year over year to $12.5 billion, resulting in adjusted earnings per share (EPS) of $10.96, up 6%. The company beat Wall Street expectations on both the top and bottom lines, helping to send the stock higher.
The results were buoyed by accelerated adoption of generative artificial intelligence (AI), highlighted by strong demand from its hyperscale cloud computing customers. Broadcom noted that AI-related revenues grew 280% year over year to $3.1 billion and now account for 25% of the company’s total revenues.
It also joined the growing group of companies initiating stock splits to lower the cost of their shares. NvidiaFor example, Broadcom announced a 10-for-1 stock split that would take place later this month. After the market closes on Friday, July 12, shareholders will receive nine additional shares for each share they own. The stock will trade on a split basis when the market opens on Monday, July 15. Management noted that the move was “to make ownership of Broadcom stock more accessible to investors and employees.”
The company had more in store for investors, raising its guidance after its strong financial performance. Management now forecasts full-year revenue of $51 billion, up from $50 billion, and expects AI-related revenue of more than $11 billion. Further, CEO Hock Tan admitted during the earnings call that his guidance on AI was conservative and likely a worst-case scenario.
Following the company’s blockbuster performance, there was a flood of positive commentary from Wall Street. Since Broadcom’s report, 20 analysts have raised their price targets on the stock.
The most optimistic among them is bank of america analyst Vivek Arya, who maintained a buy rating on Broadcom shares and raised his price target to a Street high of $2,150. That represents a potential 31% upside for investors from Monday’s closing price. The analyst believes Broadcom will generate earnings per share of $69 by fiscal 2026, which would represent a forward price-to-earnings (P/E) ratio of 24, a discount to the 28 multiple for the S&P 500.
A long runway for growth ahead
The spread of AI is just beginning, and Broadcom holds a unique position in the AI ​​ecosystem. The company’s custom accelerators, networking, switching and Ethernet solutions are the top choice among seven of the top eight hyperscalers, which offer cloud infrastructure and data center services. These users have expanded their systems to meet the demands of generative AI.
That opportunity, combined with the stock’s attractive price, makes Broadcom stock a bargain.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Why Broadcom Shares Soared 21% in June was originally published by The Motley Fool
