Broadcom Joins the $1 Trillion Club: A Growth Stock to Buy Before 2025?

Broadcom Inc. (NASDAQ: AVGO) has joined the elite club of publicly traded companies with a market capitalization of over $1 trillion. The semiconductor giant's stock surged to a new all-time high on Dec. 13, 2024, following its fiscal 2024 fourth-quarter results, which were released on Dec. 12. The stock has more than doubled year-to-date and is up over 600% during the past five years. But is this growth stock a buy before the end of the year?

A primer on Broadcom

Broadcom is a global connectivity solutions provider, offering hardware and software solutions for cloud infrastructure, data centers, networking, broadband, wireless, storage, industrial applications, enterprise software, and more. The company's products include advanced ethernet switching, application-specific integrated circuits (ASICs) for data centers, and wireless connectivity solutions.

Blowout results

Broadcom's fiscal 2024 fourth-quarter results were impressive, with revenue growth of 44% year-over-year and adjusted EBITDA margin expansion to 32.5%. The company's strong performance was driven by increased demand from cloud computing, infrastructure, and AI industries. Management expects the momentum to carry forward into fiscal 2025, forecasting first-quarter revenue of $14.6 billion and adjusted EBITDA of $9.64 billion.

Broadcom's transformation

Broadcom's acquisition of VMware in early fiscal 2024 significantly contributed to its rapid market cap expansion. The deal boosted Broadcom's position in software, cloud, and data centers, complementing its existing semiconductor and infrastructure software businesses. The integration of VMware was largely complete by the end of fiscal 2024, ahead of schedule on sales and earnings growth.

AI segment growth

Broadcom's AI segment has been a significant driver of its market cap growth. In fiscal 2024, AI revenue surged 220% to $12.2 billion, representing 41% of semiconductor revenue. The company's Jericho3-AI fabric enables high-speed connectivity between GPUs in AI-accelerated data centers, reducing tail latency and maximizing computing capabilities. Broadcom's AI-networking solutions have positioned the company as a preferred supplier in the AI revolution.

AI segment comparison with Nvidia

Broadcom's AI segment grew by 220% in fiscal 2024, outpacing Nvidia's 125% growth in the same period. Broadcom projects its AI revenue to reach $60 billion to $90 billion by fiscal 2027, indicating a compound annual growth rate (CAGR) of approximately 50% to 70% over the next three years. Nvidia, on the other hand, projects a CAGR of around 30% for its data center segment, which includes AI, over the same period.

AI segment market share and future expectations

Broadcom's AI segment has a 41% share of its semiconductor revenue, which grew 220% in fiscal 2024. Management expects its AI-driven semiconductor business to eclipse its non-AI semiconductor business in the near future, with a serviceable addressable market of $60 billion to $90 billion by fiscal 2027. This growth is driven by the increasing demand for AI accelerators or XPUs from hyperscale customers.

AI segment profitability and future margins

Broadcom's AI segment, driven by custom AI accelerators and networking, grew 220% in fiscal 2024, representing 41% of semiconductor revenue. However, its AI revenue of $12.2 billion is significantly lower than Nvidia's $23.9 billion in AI-related revenue in the same period. Broadcom's AI segment's operating margin was 35% in fiscal 2024, compared to Nvidia's 58%. Management expects Broadcom's AI-driven semiconductor business to eclipse its non-AI semiconductor business in the near future, suggesting potential margin expansion.




Is Broadcom a buy before 2025?

Broadcom's strong fiscal 2024 results and management's optimistic outlook for fiscal 2025 make a compelling case for the company's continued growth. However, investors should be aware of the risks associated with the highly cyclical semiconductor industry and the potential for industrywide downturns. Additionally, management warned that the ramp-up in hyperscaler investment will not be linear, with outlays potentially varying widely from quarter to quarter.

In conclusion, Broadcom's strategic focus on AI and networking solutions, along with its successful acquisition of VMware, has driven its market cap growth to over $1 trillion. The company's AI segment has outpaced Nvidia's growth and is expected to continue expanding in the coming years. While there are risks associated with the semiconductor industry, Broadcom's strong fundamentals and growth prospects make it an attractive investment opportunity before the end of the year. However, investors should carefully weigh the risks and potential rewards before making a decision.