Broadcom (AVGO) has gone through several major transformations since its founding in 1991, and a chart of the stock looks like a hockey stick.
AVGO is now worth close to $600 billion and the show isn’t over yet folks, there is more yet to come.
AVGO has a history of buying growth using debt.
Prior to buying Broadcom, Avago had already acquired a long list of smaller companies to expand its portfolio of wireless, optical, and data storage chips.
By paying $37 billion for Broadcom, it gained even more mobile, networking, wireless, and industrial chips. That inorganic growth strategy made it one of the world's largest chipmakers.
Broadcom subsequently expanded into the infrastructure software market by buying CA Technologies in 2018, Symantec's enterprise security division in 2019, and the cloud software giant Vmware in 2023.
Those acquisitions should diversify its business away from the cyclical semiconductor market and curb its dependence on Apple, which still accounted for 20% of its revenue over the last two fiscal years.
Growth in the 20% range should be driven by three long-term catalysts.
First, the expansion of the generative artificial intelligence (AI) market should trigger stronger sales of its data center and infrastructure chips over the next few years.
Second, its sales of chips to mobile and IT infrastructure customers should heat up again as the macro environment improves.
Apple also signed a new blockbuster deal to buy Broadcom's 5G radio frequency components and other wireless connectivity components for several more years last May, so it won't lose its top semiconductor customer anytime soon.
Broadcom's aggressive expansion strategies have been lucrative, but the sprawl could weaken the company. If that happens, investors will be a lot less forgiving of its rising debt and dilution.
I fully expect strong double-digit revenue growth in the company's AI-related businesses.
I anticipate a proliferation of Gen AI across a broad set of data center workloads to drive strength in Broadcom's custom compute offload and next-generation Networking businesses both in the near- and medium term.
There is also a strong chance of a cyclical recovery in the company's non-AI business.
In addition, I expect synergy capture following the acquisition of VMware, to drive operating margin expansion and earnings growth well in excess of the industry average.
The last lever that will affect stock appreciation will come in the form of shareholder returns.
I do believe that AVGO will ramp up the dividends as revenue accelerates.
Profits went from around $11.5 billion 2 years ago to $14 billion last year.
It’s easy to see the chip company blow by $16 billion this year as well.
It is well on its way to becoming a trillion-dollar company.
I do believe they will reach that goal around 2030.
The stock has more or less gone parabolic and now sitting around $1,200 per share.
It’s been like that for a while now.
Any dip to around $1,100 or $1,000 would be classified as a buying opportunity.
