While Elon Musk-owned electric vehicle maker Tesla Inc TSLA has slumped 22% into 2024, the shares of semiconductor maker Broadcom Inc AVGO have rallied 10%.
This is significant because the slump in Tesla’s shares combined with the growth in Broadcom’s shares means the chipmaker is now only a short way behind Musk’s company in terms of market capitalization.
A good set of quarterly earnings, to be published on March 7, could set Broadcom’s shares in motion to mount a claim for Tesla’s spot in the much-hyped group of tech stock mega caps — the Magnificent 7.
Still, more than two weeks ahead of Broadcom’s earnings report, the consensus expectations are for revenues of $11.73 billion, up 31.6% from the same quarter a year ago. Adjusted earnings are expected at $6.66 billion, up 17.3% on last year and earnings per share of $10.42, up 0.9% year-on-year.
The large year-on-year jump in revenue is thanks to its “highly-accretive” deal to buy cloud computing leader VMWare for $69 billion, completed last October. Immediately following, the company was exploring headcount reduction possibilities.
“This development was unsurprising, since it followed closely with Hock Tan‘s [CEO] acquisition playbook thus far, with AVGO’s last acquisition in 2018 — CA Technologies for $18.9 billion — resulting in an aggressive headcount reduction by nearly 41% and the sale of the Veracode SaaS platform for $950 million,” said analysts at Seeking Alpha.
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Broadcom’s Stand Against Nvidia
The leading chipmaker on the S&P 500 has been Nvidia Inc NVDA with shares that have gained a massive 235% in the past year, compared with Broadcom’s 113%.
Nvidia reports quarterly earnings after the market close on Wednesday and with expectations high, the possibilities of disappointment were already biting at chip stocks on the main index, with Nvidia stock down 2% and Broadcom off by 1.5% in early Wednesday trade.
Both companies are fabless chipmakers that outsource their production to foundries owned by companies such as Taiwan Semiconductor Manufacturing TSM, but Broadcom offers a broader range of products with around three-quarters of its revenue coming from semiconductors and a quarter from software production.
Both companies have deep engagement with the expected growth in the generative artificial intelligence market.
Analysts’ Outlook on Broadcom
Cantor Fitzgerald, which initiated coverage of Broadcom in January with an Overweight rating and a $1,300 price target, on Wednesday reiterated both on Tuesday. This followed the move on Tuesday, Feb. 13 by Mizuho, which increased its price from $1,250 to $1,450 with a Buy rating.
And in a note last week, UBS analyst Timothy Arcuri said he’d seen more potential growth in Broadcom’s custom ASIC business through to full-year 2025 than previously expected and raised the price target on the stock from $1,075 to $1,475.
Thus, if Broadcom maintains its share price trajectory, it could overtake Tesla’s market cap within months and join Nvidia as part of the Magnificent 7.
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