Seven of the world’s top technology stocks have recently been bestowed with the title of “The Magnificent Seven.” Such accolades are fluid, as the coveted group once bore the moniker of FAANG stocks, until Netflix exited, making way for Nvidia and Microsoft to claim spots.
But, which company outside this exclusive circle might jostle its members? A tech mammoth emerges as a robust contender, exceeding Tesla in size and recently making an acquisition with transformative potential.
Broadcom Unfolding Its Dominion
The star of this narrative is Broadcom (NASDAQ: AVGO), up 11% this year, brandishing a mighty market capitalization of $575 billion, now the 13th largest global entity, 12th if excluding Saudi Aramco.
Distinct from the Seven, Broadcom has organized its current business array primarily through acquisitions. CEO Hock Tan adeptly executed this strategy, acquiring quality yet bloated tech enterprises, assimilating them under Broadcom’s corporate mantle.
While diverging slightly from how other Magnificent Seven members burgeoned organically before embracing significant acquisitions, Broadcom shares crucial traits with this league: robust competitive advantages, lofty margins, tech ingenuity, and a platform poised to harness generative AI.
Enlarging Broadcom’s Dominion
Similar to select Seven constituents, Broadcom emerges as a distinctive entity among tech shares. Post the colossal VMware procurement last October, it now stands almost evenly poised between semiconductors and software. Pre-VMware, software contributed under 25% to Broadcom’s revenue, predominantly renowned for leading semiconductors in networking and communications.
Scarcely do companies straddle software and semiconductor realms equally, often leaning towards hardware or software. Embracing a newfound software emphasis, Broadcom stands to turn heads, with VMware’s hybrid cloud blueprint holding immense promise.
VMware’s Game-Changing Offering
In their Q1 earnings call with analysts, Broadcom’s management anticipates stellar revenue growth for VMware, projecting double-digit sequential upsurge each quarter this year. Foreseen is a minimum 40% fiscal 2024 revenue expansion for VMware, a remarkable acceleration beyond its pre-acquisition pace. Preceding acquisition, VMware merely escalated revenue by 2% in a quarter.
Enhanced by VMware’s virtualized AI product, VMware Cloud Foundation (VCF), Broadcom is mastering the upsell, bolstered by VMware’s partnership with Nvidia. Catering to large enterprises’ quest for on-premises data center solutions, VCF delivers a cloud-like experience, enabling the deployment of AI models within secured premises.
Broadcom eyes $20 billion in software revenue this year, surged from $7.6 billion in fiscal 2023, encompassing Symantec, California Technologies, and the newest roster addition, VMware.
Image source: Getty Images.
Broadcom’s AI Ascendancy
Augmented by enhanced software offerings, Broadcom basks in two thriving AI hardware sectors. Dominance in semiconductor switch and router domains through its Tomahawk and Jericho chipset brands propels Broadcom in networking. These pivotal components fuel high-speed ethernet connections vital for contemporary AI training and inference demands.
Further, Broadcom shines in custom ASIC business, embedding its IP in third-party AI chips like Alphabet‘s Tensor processing units. Amidst cloud computing behemoths venturing into bespoke AI chip design, this division relishes robust growth.
From modest revenues a few years ago, the AI chip businesses burgeon to billions today. A projected $10 billion revenue awaits this year from AI offerings, constituting 35% of Broadcom’s 2024 semiconductor revenue, an upswing from previous estimates.
Thriving in Cyclical Expansion Arenas
Bridging beyond AI domains, Broadcom’s landscape, though lacking the meteoric growth of AI chips, boasts sturdy franchises and plump margins. Notable is its flourishing collaboration with Apple in crafting radio frequency and wireless connectivity chips for iPhones. Sweepingly, Broadcom furnishes prime chipsets in cyclical broadband and wireless communication spheres.
Leap to Magnificent Seven?
At present, Broadcom trades around 26 times this fiscal year’s earnings projections, offering a 1.7% dividend. This valuation slots Broadcom towards the lower spectrum amidst Magnificent Seven stocks, potentially earning the zenith as the highest
Broadcom: A Tech Juggernaut Poised for Growth
Analyst Earnings Estimates and Room for Growth
Throughout the years, Broadcom has consistently outperformed analyst estimates, elevating its reputation in the tech sector. The recent trend of raising its AI revenue projections indicates a penchant for underselling and overdelivering, a tactic that has not gone unnoticed by investors.
Diversified Portfolio and Mergers
With VMware in its fold, Broadcom’s identity has evolved beyond being a mere chipmaker. Now a tech conglomerate boasting a diverse array of platforms, Broadcom’s expansive reach positions it to seek new acquisitions in both hardware and software industries. This strategic move not only broadens its portfolio but also enhances its growth prospects for the foreseeable future.
AI Growth and Future Expansion
Given a substantial share of its business is reaping the benefits of AI expansion, Broadcom stands poised to make substantial strides in the competitive tech landscape. This momentum could potentially lead Broadcom into the ranks of the Magnificent Seven or see the horizons of its influence expand into an Elite Eight.
Investment Considerations and Market Prospects
Before diving into Broadcom stock, one must mull over thought-provoking considerations. Despite not featuring in the recent Motley Fool’s list of top ten stocks, Broadcom’s track record and growth potential should not be underestimated. Coupled with the stellar performance of the Stock Advisor service, broadening one’s investment strategy with Broadcom could yield compelling returns.
Concluding Thoughts
In the ever-evolving tech market, Broadcom stands out as a dynamic player with a robust strategic vision and a knack for surpassing expectations. As historical precedents have shown, tech juggernauts such as Broadcom have the mettle to endure market fluctuations and emerge stronger, making them formidable options for savvy investors looking to capitalize on the winds of change.