Will Broadcom surpass Tesla in market cap and squeeze into the top seven US tech giants? How much longer will it take for the market cap to exceed a trillion?
Broadcom is rapidly approaching the forefront of tech companies in terms of market cap. With its rapid expansion in the AI infrastructure field and successful acquisitions of key enterprises like VMware, the company's market value has already risen by over 61% this year to approximately $860 billion, only about 30% away from a trillion-dollar market cap.
27 Wall Street analysts all recommend buying and predict that the company's stock price will continue to grow by about 19% in the next year. Although this growth may not be enough to fully reach the trillion-dollar goal, Broadcom is expected to break this milestone in 2026 if it maintains its current growth momentum.
Considering the explosive growth in AI demand, combined with significant financial contributions from acquisitions, it is rapidly pushing towards this historic goal.
Prospect of breaking the trillion-dollar market cap: Dual drivers of AI and acquisitions
Broadcom is less than 30% away from the trillion-dollar market cap milestone, and among the current tech giants, it is becoming an undeniable force. The surge in demand for AI infrastructure and wise acquisition strategies are the dual driving forces behind this growth.
Almost simultaneously with the acquisition of VMware, the AI wave has swept the market, and Broadcom is a significant beneficiary of this trend. Its extensive product line can support the construction of AI infrastructure, bringing a super cycle to its business performance.
The integration with VMware has significantly improved the company's overall financial performance, while the growth in AI business has stimulated organic growth. If you are curious about the reasons for the stock price rise of over 100% in the past 12 months, these two factors are clearly key.
According to Broadcom's third-quarter report for 2024, the company's revenue for this quarter was $13.1 billion, a year-on-year increase of 47%, and a quarter-on-quarter increase of about 5%. Non-GAAP earnings per share were $1.24, a year-on-year increase of 19% and a quarter-on-quarter increase of 12.7%, both setting new record highs for the company. The semiconductor business gross margin was 68%, while the infrastructure software gross margin was as high as 90%, resulting in an overall gross margin of 77.4%.
Broadcom's management attributes these outstanding performances to the growth in AI demand, the integration of VMware, and the gradual stabilization of some challenging semiconductor products.
Despite the company's need to increase investment in the field of artificial intelligence and absorb the integration costs of VMware, Broadcom still maintains a high profit margin. In the third quarter of 2023 (before acquiring VMware), the company's net income margin was 51.7%, which dropped to 46.8% in the third quarter of 2024. Despite the apparent decrease, considering the high merger costs of up to $69 billion and the expansion expenses in the artificial intelligence field, maintaining this profit margin level has already demonstrated Broadcom's outstanding operational capabilities.
Broadcom CEO Hock Tan mentioned during the third-quarter conference call: "When we acquired VMware, our goal was to achieve an adjusted EBITDA of $8.5 billion within three years after the acquisition. We are on track to achieve or even exceed this EBITDA target in the next fiscal year 2025."
In this aspect, VMware's integration boosted software infrastructure revenue from $2 billion to $5.8 billion, with a gross margin of 90% in that division, showing clear revenue growth. The company promptly launched and internally integrated this acquisition, generating substantial profits and cash flow, which will add more confidence to the integration of future acquisition target companies.
The growth of the AI business is equally impressive. In the third quarter, the Network segment's revenue was $4 billion, a 43% year-on-year increase, accounting for 55% of the total semiconductor revenue. Among them, Custom AI Accelerator revenue grew by 350% year-on-year, Tomahawk 5 and Jericho3-AI Ethernet switches by 400% year-on-year, and optical communication components by 300%.
Based on these strong performances, Broadcom has raised its AI revenue expectations for fiscal year 2024 by $1 billion to $12 billion, representing approximately 24% of the expected total revenue for that fiscal year.
Behind these data, Broadcom's stock price benefits from numerous favorable factors, including sales and revenue growth brought by VMware, efficient management mergers and acquisitions integration, and increasing AI expenditures. AI business and acquisitions provide the company with dual momentum, driving the company towards the trillion-dollar market cap goal.
Analysts project that if Broadcom can maintain its current growth trajectory, it is likely to reach the milestone of a trillion-dollar market cap in the coming years (most probably in 2026), becoming a true trillion-dollar market value technology giant.
From VMware to Symantec, Broadcom advances step by step.
Broadcom's rise relies not only on the growth of its AI business, but also on its successful merger and acquisition strategy, which is a key force driving it to become a technology giant. Through multiple successful acquisitions of companies such as Symantec, CA Technologies, and VMware, Broadcom gradually built a business moat spanning the semiconductor and software fields. Broadcom has gradually established a moat across the semiconductor and software domains, steadily expanding its business footprint.
Compared to other companies, Broadcom's style in mergers and acquisitions appears to be very unique, somewhat like a private equity firm. Its goal is not only to simply expand its business scope, but also to achieve the dual objectives of 'revenue growth + high profit margins' through acquisitions. Acquired companies often quickly transform into high-profit business modules under Broadcom, thanks to Broadcom's excellent integration capabilities.
In particular, the acquisition of VMware, valued at up to $69 billion, is considered one of Broadcom's most important acquisitions in recent years. After the acquisition was completed, it rapidly increased VMware's profit capabilities, setting its adjusted EBITDA target to reach $8.5 billion within three years.
CEO Hock Tan has stated that the company is expected to achieve or even surpass an adjusted EBITDA target of $8.5 billion in the fiscal year 2025. This integration capability demonstrates Broadcom's outstanding execution in quickly improving profits after acquisitions.
Wall Street analysts generally hold an optimistic view on Broadcom's merger strategy and stock price growth. JP Morgan Chase analyst Harlan Sur believes that Broadcom, through the integration synergies with VMware, is expected to achieve the goal of surpassing a trillion-dollar market cap in the coming years, maintaining a 'shareholding' rating.
Broadcom's diversified merger strategy has helped the company expand from semiconductors to cybersecurity, cloud computing, and enterprise software, forming a complete ecosystem of 'hardware + software.' This layout not only brings the driving force of high growth but also enhances the business's resilience, laying a solid foundation for its progress towards the trillion-dollar market cap.
AI and Financial Performance: Robust Growth Driver
Broadcom's AI business and robust financial performance are key drivers propelling its rapid market cap growth, complementing each other and forming a solid foundation for the company's development.
In the third quarter of the fiscal year 2024 (as of August 4), Broadcom's revenue reached $13 billion, a year-on-year increase of 47%. Although the organic growth of revenue was only 4% after excluding the impact of acquiring VMware, this does not mean that ai has not helped Broadcom.
As you know, our hyperscale customers continue to expand and enhance their AI clusters. Custom AI accelerators have grown by 3.5 times. In terms of structure, Ethernet switches driven by Tomahawk 5 and Jericho3-AI have grown by more than 4 times year-on-year, while optical lasers and thin chips used for optical interconnections have grown by 3 times.
If you carefully analyze these data, you will find that this is an incredible growth. Switching connections grew by 400%, while custom AI accelerators (such as Alphabet's Tensor Processing Units (TPU), which outperform Nvidia's GPUs in AI performance) increased by 350%, significantly exceeding the market's expectations.
The growth in AI demand has also driven an improvement in the company's gross margin. In the third quarter, Broadcom's gross margin reached 77.4%, with infrastructure software's gross margin as high as 90%.
Broadcom has made significant investments in expanding its ai business, while absorbing integration costs from VMware, yet the company has still been able to maintain a strong profitability and net profit margin. Although the net profit margin for the third quarter of 2024 decreased from 51.7% in the same period last year to 46.8%, the ability to maintain this level considering merger costs and AI-related expenses demonstrates Broadcom's excellent operational capability.
Broadcom's free cash flow performance has been very strong, generating $4.79 billion this quarter, accounting for 37% of total revenue. This healthy cash flow provides funding support for the company's large-scale mergers and effectively helps manage debt.
Overall, the rapid growth of the ai business and sound financial performance complement each other, driving Broadcom towards the trillion-dollar market cap goal.
Symbolic victory surpassing Tesla: Potential tech stocks have become leaders in the technology field
Broadcom's market cap has surpassed Tesla, successfully joining the ranks of the 'Seven Tech Giants' in the technology sector. This is not only a symbolic victory but also signifies a fundamental elevation in its position in the tech industry.
In the past year, Broadcom's stock price has risen by over 100%, surpassing other well-known tech companies such as Tesla. This growth is not incidental but a comprehensive reflection of the explosive growth in AI business, successful mergers and acquisitions, and financial stability.
Interactive Brokers' Chief Strategist Steve Sosnick believes that Broadcom's rise in 2024 should replace Tesla among the 'Seven Giants.' He stated that Broadcom has captured the current market trends, with a stronger presence in AI stocks. While Tesla may also become an AI stock in the future, Broadcom is one now.
Broadcom cannot guarantee to lead Tesla at least in the short term. Due to Tesla's well-known stock price volatility, its market cap may surpass Broadcom's for a period. However, Broadcom's long-term prospects are more optimistic between the two. Wall Street analysts are forecasting a continued increase in its stock price, while they anticipate Tesla's price to continue to decline.
Compared to Tesla, Broadcom's growth appears more stable and robust. Tesla's stock price has high volatility, while Broadcom demonstrates a more stable growth path with its steady business expansion and continuous cash flow. In the past four years, Broadcom's stock price has increased by 290%, while Tesla has experienced multiple significant fluctuations, showing higher uncertainty and has fallen back to levels nearly four years ago.
Piper Sandler analyst Harsh Kumar shares similar views: they persist in seeing Broadcom as one of the best AI thematic stocks alongside Nvidia because the company holds a strong position in the ASIC chip sector and has a powerful software portfolio.
Broadcom's success is not only reflected in its stock price but also demonstrates a new type of leadership – it has achieved a prominent position in AI and infrastructure by its dual-driven strategy of 'hardware + software.' This strategy has distinguished Broadcom in the tech competition, transforming it from a behind-the-scenes force to a true industry leader. This market cap victory over Tesla symbolizes Broadcom's strength in the tech world and the leadership position it may occupy in the future.
Investment Opportunity: Is the window of opportunity about to close?
Broadcom's stock price has risen by over 100% in the past year, showing strong growth momentum. This upward trend is attributed to the company's layout in the AI field, successful mergers and acquisitions, and robust financial management. With the market cap approaching one trillion US dollars, investors can't help but wonder: is Broadcom's window of opportunity closing?
Despite the current high stock price, analysts remain optimistic about Broadcom. JP Morgan Chase analyst Harlan Sur has given Broadcom a 'shareholding' rating, believing that its market cap is likely to surpass one trillion US dollars in the coming years. In addition, Bernstein's Stacy Rasgon also points out that with its strong profit capabilities and efficient integration strategy, Broadcom can continue to lead in the semiconductor industry, expecting further upside potential in its future stock price. These views demonstrate that even at its current high levels, Broadcom still holds significant investment value.
Broadcom's continuous growth in dividends over the years is also an important factor attracting investors.
On a per-share basis, the total cash amount paid to shareholders by the company in the third quarter was $2.5 billion, equivalent to a dividend yield of approximately 0.52 for this quarter, completely within the green zone, which will allow the company to continue increasing dividends in the foreseeable future.
Driven by the strong performance of its AI business and infrastructure software business, Broadcom's free cash flow has been excellent, providing a foundation for further dividend increases. This quarter, free cash flow reached $4.79 billion, accounting for 37% of revenue. This healthy cash flow supports the company's shareholder return strategy, making Broadcom one of the few AI giants capable of balancing growth and returns.
However, Broadcom's high P/E ratio also reflects the market's high expectations for its future growth, with the current valuation level not considered cheap.
Compared to the industry median, Broadcom's P/E ratio is significantly higher than its historical average, indicating investors' confidence in the company's revenue and profit growth in the next few years. Therefore, for investors, Broadcom remains a long-term investment worth holding, but consideration should be given to its valuation level and market volatility risks. Interested investors can use the multi-asset wallet BiyaPay to periodically check Broadcom's future market trends and choose the right trading opportunities.
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When considering investment opportunities in Broadcom, it is more important to grasp the current growth potential.
The increasing demand for AI, as well as the company's extensive presence in the semiconductor and software sectors, may continue to drive the stock price higher. However, as the company approaches its target of a trillion dollars in market cap, investors should weigh the relationship between short-term fluctuations and long-term returns to find the right entry point. In this context, the window of opportunity may be slowly closing, but for investors who value long-term growth, Broadcom remains a technology giant worth paying attention to.
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