Broadcom stock price rose by 5% on Wednesday after extending its relationship with Apple. AVGO rose to $395, a 10% increase from its lowest level this month. It remains in a local bear market after falling by 20% from its highest point this year. So, will it rebound and retest its all-time high?
Broadcom expands its relationship with Apple
Broadcom, a top company valued at over $1.85 trillion, has made several deals in the past few months, helping it become one of the biggest beneficiaries of the artificial intelligence boom.
In a statement on Tuesday, Apple said that it was expanding its partnership with Broadcom in a multi-year deal valued at over $30 billion. As a result, the partnership will lead to a boost in production of over 15 billion US-made chips. It will also see Broadcom expand its facility in Colorado.
Broadcom has also made a major deal with OpenAI, the creator of ChatGPT. This deal has seen OpenAI design its own custom chips, with Broadcom being the manufacturer. They recently showcased these chips, which are now in testing.
This deal is expected to be highly profitable for Broadcom, with Blayne Curtis, a Jefferies analyst, predicting that it will make it over $50 billion by 2028.
Broadcom also has extended its deal with Meta Platforms and Alphabet, the parent company of Google.
These deals have boosted Broadcom’s business in the past 12 months. Its recent results showed that its revenue jumped by 48% in the second quarter to over $22.1 billion. Its closely-watched AI semiconductor revenue jumped by 143% YoY to $10.8 billion, and is being driven by the rising need for custom AI accelerators and AI networking solutions.
Wall Street expects Broadcom’s growth to continue
Analysts are highly optimistic about its future growth. Yahoo Finance data shows that the average estimate is that its revenue will jump by 84% in the third quarter to $29.4 billion. Its fourth fiscal quarter’s revenue is then expected to rise by 93% to $34.9 billion, bringing its annual figure to $106 billion. Its next fiscal year revenue is expected to grow to $172 billion.
These are strong numbers for a company that was started in 1961 and is a sign that it has continued to transform itself over time. This transformation has been through organic and inorganic means. It acquired VMware in a $61 billion deal, CA Technologies and Symantec Enterprise Security in deals worth $19 billion and $10.7 billion, respectively. Its other top buyouts were LSI Corporation and Brocade Communications.
Still, there are some concerns about the company’s valuation, with the forward price-to-earnings ratio being 40, higher than other companies, including Nvidia and Micron.
On the positive side, the company’s Rule-of-40 metric is encouraging, with its net profit margin being 39% and its revenue growth being 32%. This gives it a multiple of 71%.
Broadcom stock price analysis
AVGO stock has been in a bull run in the past few months, rising from $138 in April last year to a record high of $495. This rally stalled after its recent earnings, with the stock falling to a low of $356.
It has moved slightly below the key support level of $414, its highest swing in December last year. On the positive side, it has found substantial support above the 200-day moving average.
Therefore, the outlook is bullish as long as it is above this moving average. If this happens, the stock may resume rising, potentially to the year-to-date high of $495.