Broadcom (AVGO) Strategy Make Them Stand Out In AI Chips Race
$Broadcom(AVGO.US$ is expected to release earnings on 12 June 2024 after the market closes (AMC).
The advantage for Broadcom is that it is the leading player in the ASIC market with an estimated share of 35%, according to JPMorgan. This solid share explains why Broadcom is anticipating $10 billion in revenue from sales of AI chips this year. It is worth noting that Broadcom's AI chip revenue jumped fourfold year over year in the first quarter of fiscal 2024 (which ended on Feb. 4) to $2.3 billion.
The chipmaker has reportedly built a solid clientele in the custom AI chip market already, including the likes of $Meta Platforms(META.US$ and $Alphabet-A(GOOGL.US$ . Thanks to such clients, Broadcom's AI revenue is expected to jump at least 2.5 times in 2024 as compared to last year. More importantly, the growth of the custom AI chip market and Broadcom's dominant position in this niche explain why its AI revenue is expected to jump to $16 billion in 2025 and $20 billion in the following year, according to Melius Research.
Broadcom (AVGO) Last Reported Earnings
AVGO last reported earnings on 07 March 2024 after the market close (AMC). AVGO shares declined -7.0% the day following the earnings announcement to close at 1303.17. Following its earnings release, 94 days ago, AVGO stock has drifted +7.9% higher. From the time it announced earnings, AVGO traded in a range between 1197.56 and 1445.40. The last price (1406.64) is closer to the higher end of range.
Upcoming earnings implied straddle stands at 6.7%. From the market expectations of a better earnings this upcoming report, I would think that Broadcom should be able to produce a positive price effect of around 2-3%.
Broadcom Advantage In Second Wave Of AI Frenzy
A different but compelling AI vision was put forth by Broadcom at its investor event in March 2024,
Broadcom held its first-ever investor day at its facilities in San Jose on Wednesday morning, perfectly timed to capitalize on the GTC24 momentum and position the company for investors. It was attended by both buy-side and sell-side analysts and only a few industry analysts such as ourselves.
The important to note is the president of Broadcom’s sharing on the Semiconductor Solutions Group about its strategy, philosophy, technology, execution ethos, engineering talent and we saw demos of some of the most leading edge silicon technology on the planet.
Broadcom has 26 divisions or P&Ls and 17 of them are in the semiconductor group. The semiconductor group is a roughly $30 billion revenue business, growing in the double digits. The group spends $3 billion annually on R&D.
Broadcom does not chase after the market to try to ride the steep part of an S-surve. They would look for durable markets with sustainable franchises that have a decade or more runway. In those markets, it goes for technology leadership and it executes to a firm plan. With AI, Broadcom just happened to catch a big wave and is exceedingly well-positioned.
This could be their secret sauce to success,
Potential Buy Signal Shown Up For Opportunity
If we looked at the MACD chart, there is a crossover formed and this could be a good time to look at how Broadcom would be moving upside ahead of its upcoming earnings report.
On the KDJ side,we could see that it is also having an upside move, so this could signalled that market sentiment on Broadcom remain positive and what I would look out for would be their strategy in the midst of the AI wave and demand.
Summary
Broadcom have been a steady performer as their strategy is not to chase the market, rather they look out for value, this has make their performance steady in the event of any industry downside.
With the demand from big tech like Meta and Alphabet, there would be more technological advancement as AI continue to mature, so Broadcom is in a good position to continue its upside.
Appreciate if you could share your thoughts in the comment section whether you think Broadcom would be able to continue its upside with the AI wave and demand maturing.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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