Shares of Broadcom (NASDAQ: AVGO) have surged by an impressive 106% over the past year, driven by growing investor confidence in the company’s role in powering the future of artificial intelligence (AI). As the technology sector continues to evolve, Broadcom is set to implement a significant stock split on Friday, July 12, 2024, which will see a 10-for-1 split. This move will increase the number of shares held by shareholders of record by nine additional shares for every one share they currently own. Starting Monday, July 15, 2024, Broadcom shares will begin trading on a split-adjusted basis.
Historical Trends Suggest Continued Growth Post-Split
While Broadcom, which was acquired by Avago in 2016 and retained the Broadcom name, has not previously executed a stock split, historical data from other companies provides a positive outlook. Bank of America research shows that since 1980, stocks that have undergone splits have generally outperformed the S&P 500 index. On average, these stocks have seen a 25.4% increase in share price within a year of the split announcement, compared to the S&P 500’s average gain of 11.9% during the same period.
Recent data from 2010 onward also indicates that stock splits tend to benefit companies more than the S&P 500, though the advantage is slightly reduced. Companies experienced an 18.3% average increase in share price over the year following a split announcement, compared to the S&P 500’s 13.3% gain.
Based on these historical trends, Broadcom’s stock might see a further rise of between 2% and 9% by June 2025, following the 16% advance since the split announcement on June 12, 2024. However, it is important to remember that past performance is not a definitive predictor of future returns, and potential investors should conduct thorough research before making investment decisions.
Broadcom’s Strategic Position in AI and Technology
Broadcom’s success can be attributed to its strong foothold in both semiconductor solutions and infrastructure software. The company’s semiconductor segment dominates the market for networking chips, with approximately 80% market share, serving major clients like Cisco Systems and Arista Networks. In the realm of AI, Broadcom is a leader in creating application-specific integrated circuits (ASICs), including tensor processing units for Google’s machine learning projects.
The company also became a dominant player in virtualization software following its acquisition of VMware last year. VMware’s technology allows for the creation of multiple virtual systems on a single physical server, optimizing resource use and enhancing efficiency for enterprise customers.
Broadcom’s recent financial performance reflects this strategic positioning. For the second quarter of fiscal 2024, ending in May 2024, Broadcom reported a 43% increase in revenue to $12.5 billion and a 20% rise in non-GAAP net income to $5.4 billion. CEO Hock Tan attributed these results to strong demand for AI products and growing adoption of VMware’s software solutions.
Valuation and Future Prospects
Ben Reitzes of Melius Research recently highlighted Broadcom as a top AI stock pick due to its leadership in the semiconductor industry and its role in advancing AI technologies. Wall Street forecasts a 24% annual growth rate in adjusted earnings per share through fiscal 2025, suggesting that Broadcom’s current valuation of 40 times adjusted earnings is justifiable for long-term investors.
Is Now the Right Time to Invest $1,000 in Broadcom?
While Broadcom presents a compelling investment opportunity, The Motley Fool’s Stock Advisor team has identified other stocks as potentially better buys at this moment. Their top ten picks could offer substantial returns in the coming years.
Investors considering Broadcom should weigh the potential for future growth against other available opportunities and perform careful due diligence before making any investment decisions.
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