Broadcom (NASDAQ: AVGO), a giant in semiconductors, saw its stock double in 2023, continuing a run of over 36% annualized gains that began in 2007.
Some experts were wondering if the slight slowdown in the fourth quarter was because of competition catching up or because businesses were spending less.
Broadcom is still in a unique position for long-term growth in key areas like 5G, artificial intelligence (AI), and enterprise software, even with the latest results.
The Ongoing 5G Rollout Provides a Multiyear Tailwind
Broadcom thinks that the current rollout of 5G network infrastructure in the U.S. and around the world over the next ten years will be very good for their company.
Let me tell you that 5G networks are up to 100 times faster and have less delay than 4G. This is the most important round of network upgrades in more than 10 years.
As an example, Broadcom and Apple just signed a multiyear, multibillion-dollar deal for Broadcom to provide 5G radio frequency components.
This shows how long-term the desire is, even from just one big customer. Overall, 5G could make people want to upgrade their phones again because they want faster downloads and better connection.
Juniper Research forecasts that 80% of global operator-billed service revenue will be attributable to 5G services by 2027. Additionally, Ericsson predicts that 5G will account for 82% of total subscriptions in Western Europe, 80% in the Gulf Cooperation Council region, and 74% in North-East Asia by 2027.
This is up from about 850 million in 2023. Broadcom’s connectivity chips will be in high demand for years to come as 5G is rolled out.
AI Emerging as the Next Major Computing Workload
Broadcom thinks that artificial intelligence (AI) will be a big part of future growth, along with providing connectivity. They also thinks that AI workloads could bring in 15% of its total chip revenue through its Symantec business.
Broadcom’s sales of AI chips went over $1 billion for the first time in Q3 2023. The company’s leaders think that sales of AI chips will eventually make up about a quarter of all sales.
The growth of AI is connected to the moves to improve data centers and the cloud. Jensen Huang, CEO of NVIDIA, said that AI would cause the cost of building new data centers to reach $1 trillion by the end of 2023. Amazon AWS, Microsoft Azure, and Google Cloud are all big names in the cloud that are putting a lot of money into AI chips and infrastructure.
Broadcom, a top company that makes semiconductors for data centers, will be able to benefit from the huge rise in spending on AI over the next 5 to 10 years. Its VMware acquisition will also improve its place in enterprise software for hybrid cloud environments that are perfect for AI workloads.
Software & Enterprise Acquisitions Expand Total Addressable Market
Broadcom is still growing into corporate software and services in addition to its main business of making chips. It revealed in 2022 that it would buy virtualization pioneer VMWare for $61 billion, and the deal finally closed in late 2023.
Broadcom’s software sales will go from $5.5 billion a year to over $11 billion a year thanks to the deal. It also wants to speed up businesses’ acceptance of hybrid clouds and digital transformation.
Broadcom also bought cloud services company Symantec for $10.7 billion in 2019, which included security and the ability to stop data loss. That made it easier to sell other products related to protecting business tasks.
Broadcom greatly increased the size of the market it could serve by making smart software deals. It changes the company from just providing connections and computing power to providing important software infrastructure that makes digital transformation possible.
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Short-Term Concerns Balanced by Long-Term Opportunities
As we moved into 2024, some experts became worried when Broadcom’s revenue from semiconductor solutions dropped 6% year-over-year in Q4. But management said that this was mostly because of less inventory in the supply chain and predicted that things would get better in 2024.
Based on the quarterly data, Joseph Moore, a Morgan Stanley analyst, thinks that businesses will spend less in 2023. But he insisted that Broadcom would still see growth in the data center market of around 10% total.
So, short-term changes in demand have an effect on quarterly numbers, but long-term growth possibilities in 5G, AI, and software look set to power Broadcom’s next ten years. Its track record of successfully integrating large acquisitions gives it confidence that it can take advantage of new possibilities.
Analysts think that Broadcom’s earnings will grow by about 15% each year until 2027. This is after having 36% annual returns over the last 10 years. Even though Broadcom isn’t as high as it used to be, it is still a star in semiconductors and has a lot of room to grow. Its new double in 2023 is another sign that it can do much better than the market as a whole.
Even though short-term financial expectations have lowered, Broadcom still has a good long-term outlook thanks to long-term benefits from 5G, AI, and the digital change of businesses. For buyers, it’s still one of the best tech stocks, and it has years of growth ahead of it.