Below is a recap of analyst @Tiger_James Ooi ‘s webinar, “Could Broadcom sustain their stunning bull run?”
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JamesOoi: Earnings Preview,Could Nvidia Sustain It’s Stunning Bull Run?
$Broadcom(AVGO)$ is expected to report its earnings on 5th of September, after the market closes.
• Broadcom is one of my favorite AI stocks, but it is underappreciated by investors in the past due to the expensive share price
• Broadcom had been trading above $400 since 2021 and it was trading at $1,600 right before the 10-for-1 share split on 12th July.
• It's currently trading at $165 post-stock split, making it more affordable and likely to attract more investor interest.
• Broadcom is a global technology company that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions for data centers, networking, broadband, wireless, and storage markets.
• One of the key reasons Broadcom offers so many products is Broadcom acquired a lot of companies in the past.
• Broadcom also has a history of laying off employees, selling off unprofitable products, and raising prices after acquisitions.
• Generally, the forecast for the end July quarter is quite positive.
• Revenue is expected to grow by 46% year-over-year while operating income is expected to grow by 100% yoy in the latest quarter.
• Broadcom has one of the highest profit margins in the tech industry.
• Aside from networking, other semiconductor solutions like wireless, storage, broadband, and industrial have been providing flat or negative year-over-year growth for the past four quarters.
• Networking, which accounts for 30% of the total revenue, increased by 46% yoy in the latest quarter.
• The reason networking is growing so fast is that it is closely related to AI development
• The networking solutions are all about making sure devices can connect and communicate quickly, efficiently, and reliably.
• Networking: Broadcom currently has a commanding 80% market share in the datacenter/AI Ethernet switching and routing chipset market. In addition, Broadcom also helps hyperscalers custom-make AI chips, and currently holds about 60% of the market share in the custom AI chip sector.
• $Broadcom(AVGO)$ holds around 60% of the custom chip market.
• In a recent earnings call, Broadcom mentioned having three major ASIC customers. Google and Meta are widely known; the third is speculated to be ByteDance (TikTok's parent company).
• Nvidia's AI chips are high-performing but expensive, with a 3-4 month wait time.
• Some hyperscalers are turning to custom chips to reduce dependency on Nvidia.
• Broadcom assists in designing these custom chips.
• The ASIC chip market is valued at $20-$30 billion, with Broadcom holding a 55%-60% share.
• Broadcom's ASIC revenue is projected to grow at a 71% CAGR from 2024 to 2026.
• $Broadcom(AVGO)$ is a top AI "picks and shovel" play due to its significant AI revenue.
• Broadcom’s AI revenue as a percentage of total semiconductor revenue has been growing:
• 2023: AI revenue was 15% of total semiconductor revenue.
• 2024: Expected to rise to 35%, a 160% year-over-year increase from $4 billion to $11 billion.
• The $11 billion AI revenue estimate might be conservative; AI revenue was $5.4 billion in the first two quarters of 2024.
• With the current 53% and 35% quarter-over-quarter growth rates in the first two quarters of 2024, AI revenue could exceed $11 billion this year if Broadcom can maintain the same growth rate.
• The current analyst consensus 12-month target price for Broadcom is $193.27, representing an upside potential of 16.6% compared to the August 22nd closing price of $165.78.
• In conclusion, I favor Broadcom and Nvidia as they are long-term beneficiaries of AI.
• Nvidia currently offers the best AI chip, and companies not using Nvidia's AI chips risk falling behind in AI development.
• However, due to Nvidia's premium pricing, some companies are exploring custom-made AI chips, and this is where Broadcom comes in.
• Companies like Meta, Alphabet, and likely ByteDance are turning to Broadcom to reduce their reliance on Nvidia by custom-making AI chips.
• For these reasons, both Broadcom and Nvidia deserve a place in one’s aggressive portfolio.
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