To The Moon

From custom silicon to enterprise software, Broadcom’s strategic moves are lighting up Wall Street—and for once, the hype might just be justified.

I must admit, when I first saw Broadcom’s share price flirting with the US$265 mark—a whopping 868% five-year return—I nearly spat out my tea. But after digging into the numbers and strategic manoeuvres, I’ve come to realise this isn’t just another frothy tech story. This is a company executing a masterclass in positioning itself at the crossroads of artificial intelligence and enterprise infrastructure. And investors, quite rightly, are paying attention.

Behind the scenes, Broadcom is building tomorrow’s infrastructure

Broadcom’s appeal isn’t built on sizzle alone—it’s powered by serious structural shifts in both its business model and the broader tech landscape. From snapping up VMware in a US$69 billion blockbuster deal to quietly dominating the AI networking layer, Broadcom has transformed from a niche chip designer to a diversified digital backbone. It’s no wonder the stock is up nearly 68% in a year, far outpacing the S&P 500’s modest 11.8%.

Let’s unpack the core drivers behind this investor enthusiasm—and why, despite the eye-watering valuation, Broadcom still holds strategic appeal.

Chips and Software: A Match Made in Margin Heaven

When Broadcom acquired VMware in late 2023, many questioned the wisdom of a semiconductor company diving headfirst into software. But hindsight, as always, is 20/20. The deal has helped $Broadcom(AVGO)$ rebalance its revenue mix, buffering against the cyclical shocks that tend to rock chipmakers during economic downturns. With VMware now firmly integrated, Broadcom has established a recurring revenue stream that’s not only sticky but high-margin.

This isn’t just financial engineering. By controlling both the underlying silicon and the software ecosystem, Broadcom can offer more vertically integrated solutions to enterprises looking to modernise their infrastructure. It’s also a clever hedge: while AI hardware garners headlines, enterprise IT budgets still lean heavily on software efficiency and hybrid cloud adaptability—domains VMware knows well.

Here's something investors might not immediately spot: Broadcom is now sitting on a software business with operating margins north of 60%. That’s nearly double its hardware margin profile. For a company already pulling in over US$57 billion in revenue, that’s a tectonic shift in profitability potential.

Feeding the AI Beast—Silicon and Beyond

Now, onto the spicy bit. Broadcom’s role in AI isn’t as glamorous as Nvidia’s, but it’s arguably more fundamental. The world’s largest cloud providers—$Amazon.com(AMZN)$, $Alphabet(GOOGL)$, $Meta Platforms, Inc.(META)$—are increasingly turning to Broadcom for custom AI accelerators and high-speed networking chips. While Nvidia commands centre stage with GPUs, Broadcom quietly supplies the plumbing: high-bandwidth switches, custom silicon for hyperscalers, and interconnect solutions that ensure these colossal AI models can run without melting down.

It’s a less visible position, but strategically crucial. AI infrastructure is becoming more specialised, and hyperscalers are keen to avoid vendor lock-in. Enter Broadcom, with its decades of experience in ASIC design and a track record of delivering tailored solutions at scale. That moat, while less flashy, is exceptionally hard to replicate.

Investors might not realise just how integral Broadcom has become to this AI build-out. Take its Tomahawk and Jericho networking chips—these are already deployed in next-gen data centres powering generative AI workloads. And while Nvidia sells to everyone, Broadcom embeds itself in exclusive, long-term hardware design cycles. That means durable, multi-year revenue visibility—something investors in the current climate are increasingly desperate for.

Of course, no moat is immune. Nvidia is creeping into networking with its Mellanox acquisition, and Broadcom’s custom chip revenue still depends heavily on a tight circle of hyperscaler clients. Add a dash of regulatory scrutiny—particularly after the VMware deal—and the smooth road ahead could develop a few bumps. But so far, Broadcom’s execution has been nothing short of surgical.

For those who like their conviction supported by trend lines and trading floors, the chart below maps Broadcom’s rising gravity in both price and participation.

Where momentum meets conviction—and volume confirms the story

Cash is King, and Broadcom Has a Throne Room

Let’s talk discipline. In a market jittery about tech valuations, Broadcom stands out for its financial housekeeping. The company generated over US$26 billion in free cash flow over the past year and has returned much of it to shareholders through dividends and buybacks. That payout has grown steadily, even as other tech firms hoard cash or flirt with over-leveraged moonshots.

Despite carrying US$40 billion in debt, Broadcom’s free cash flow easily covers its dividend and service obligations. And with an enterprise value now topping US$1.25 trillion—nearly 31 times that debt load—it looks more like a tactical lever than a red flag.

It helps, of course, that the business runs with a 22.6% net margin and a return on equity nearing 19%. Even more impressive, Broadcom has pulled this off without sacrificing innovation or chasing vanity metrics.

One nugget that flies under the radar? The company’s 10:1 stock split in July 2024 may have done more than simply increase affordability. It widened the investor base, opened the door for index weighting adjustments, and helped drive daily volume above 27 million shares—a clear sign that liquidity and institutional interest are at all-time highs.

Not the loudest player—just the one powering the race

A Smart Bet in a Noisy Market

Yes, Broadcom is expensive. Its trailing P/E is over 96, and even the forward multiple sits at a punchy 38. But this is no longer just a chipmaker—it’s a diversified, cash-generating, AI-enabling behemoth with a strategic roadmap that’s actually being executed.

In a sea of overhyped AI narratives and flaky tech plays, $Broadcom(AVGO)$ feels like the grown-up in the room. It’s not chasing the spotlight, but quietly ensuring the infrastructure keeps humming. As an investor, I’m far more inclined to back the engineer building the race track than the driver doing donuts in the paddock.

With the AI buildout just getting started and enterprise IT spending finding its groove again, Broadcom’s blend of reliable cash flow, long-cycle contracts, and strategic diversification make it a compelling long-term compounder. If there’s one tech name that deserves the attention it’s getting, it’s this one.

And if it keeps up this pace? At this rate, I’ll need a new kettle—and maybe some Broadcom

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