Can Broadcom Replicate NVIDIA's Stock Split Success?
The stock split announcement drove $NVIDIA Corp(NVDA)$ 's share price up 27%, breaking through the $3 trillion mark and making it one of the big three in the U.S. stock market.
Clearly, investors are still pumped about the concept of stock splits!
On June 12th, $Broadcom(AVGO)$ , another chip giant, announced a 1-for-10 stock split along with stellar financial results, set to take effect on July 15th. This sparked a buying frenzy, and in just two days, its stock price soared 16%.
All in on Broadcom
Baird's Tristan Gerra kept his "Outperform" (Buy) rating and hiked the target price to $1,950 from $1,500, a 12% jump from last Friday's close.
Deutsche Bank's Ross Seymore maintained his "Buy" rating and upped his target to $1,900, citing strong AI growth and VMware's integration-driven second-quarter earnings surprise.
On Monday, Broadcom's stock closed up over 5.4% at $1,828, even surpassing NVIDIA's pre-split price. Its forward P/E ratio hit 36, indicating a robust valuation. As for the reason behind the stock split, Broadcom's management says it's to make investing and employee ownership easier.
Broadcom has split its stock three times since 1999, but none since its acquisition by Avago in 2016.
Growth potential in AI era
Besides its high stock price, Broadcom's growth potential in the generative AI era is also a major factor.
Remember when Broadcom acquired $VMware(VMW)$ late last year? That's been a major growth driver. In its second quarter, Broadcom's revenue grew 43% to $12.5 billion, but excluding VMware, revenue rose just 12%.
In addition, AI products generated $3.1 billion in revenue, accounting for about a quarter of the company's total revenue.
Thanks to strong AI demand, management raised its network revenue growth forecast to 40% from 35%, and full-year revenue guidance to $51 billion from $50 billion, with $11 billion of AI revenue.
Whether there's a stock split or not, Broadcom is a solid stock worth holding long-term. The company's M&A prowess and cost-cutting abilities are legendary, and VMware is likely to be no exception.
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