Why Broadcom Could Be Your Best Stock-Split Buy Leading Into 2025

It has been an electrifying year for investors in Broadcom (NASDAQ: AVGO). The tech giant has seen its stock more than double, riding high on a wave of strong business performance and strategic maneuvers. Following a stock split over the summer to make shares more accessible, the excitement around Broadcom didn’t just fizzle out; instead, it propelled the price to nearly $250!

But here’s the kicker—don’t let short-term price movements cloud your judgment. It’s the underlying business developments that might signal a fantastic opportunity ahead, especially as Broadcom positions itself as a key player in the burgeoning artificial intelligence (AI) chip market. Let’s dive into why Broadcom could be the best stock-split buy as we head toward 2025.

Broadcom’s Emerging AI opportunity

For years, Broadcom has been a specialist in semiconductors designed primarily for networking and connectivity applications. Their expertise is now seamlessly translating into the AI chip sector, thanks to the development of their custom chips known as XPUs (extreme processing units), specifically engineered to tackle AI-specific tasks. Imagine this: while Nvidia has historically dominated the AI chip market with its GPUs (graphics processing units), there’s room for others to carve out their niche. The market for AI inference chips is rapidly expanding, where the demand for efficiency and effectiveness can no longer be met by relying on a single supplier.

The AI Inference Game: A New Battlefield

Now, for those who are wondering about the distinction, think of AI training as akin to building a high-performance car and AI inference as fine-tuning that car for smooth driving on tricky terrain. In the world of AI, inference involves applying AI’s intelligence to real-world scenarios and getting correct results efficiently, so even a smartphone can handle it!

Nvidia does have chips suitable for inference tasks, but there’s a growing percentage of companies that prefer not to have all their chips sourced from one provider. This presents a golden opportunity for Broadcom.

Is Broadcom on The Brink of a Growth Surge?

Broadcom’s fiscal 2024 quarter brought to light its impressive momentum in AI revenue, which surged by an astonishing 220% to reach $12.2 billion. During their earnings call, management hinted at the high demand for their AI XPUs without naming specific clients—yet indications suggest they are lined up with three major corporations looking to ramp up their usage. Each of these could be incorporating more than a million XPU chips in a single cluster by 2027.

The potential market for Broadcom’s AI offerings could land anywhere between $60 billion and $90 billion by 2027. Now, consider for a moment that Broadcom is reportedly working with some high-profile companies, including the developers of ChatGPT and Apple, on inference chips. This further solidifies the notion that Broadcom is gearing up to make a significant impact in the AI landscape ahead.

Valuation Metrics Point to a Steady Momentum

Despite recently posting substantial gains, now isn’t necessarily the time to shy away. Broadcom’s stock has risen by an impressive 50% in just a month, but don’t let that scare you off. This surge is grounded in fundamental advancements, not mere hype. Analysts are recalibrating their long-term earnings growth forecasts as they gain confidence in Broadcom’s extensive AI opportunities.

Currently, Broadcom trades with a forward P/E ratio of 40, which is quite reasonable for a firm slated to grow earnings by over 21% annually in the upcoming three to five years. The stock’s PEG ratio sits at 1.9, which signals that growth and valuation are starting to come into balance. Although I typically eye stocks with PEG ratios between 2.0 and 2.5, Broadcom stands out as a quality pick worth considering.

Conclusion: A Stock to Watch Into 2025

As we edge into 2025, the overall sentiment suggests that Broadcom remains a compelling stock to fold into your investment portfolio. Not only has their software business been invigorated by last year’s VMware acquisition, but the AI ramp-up is still in the early innings. So hold tight and keep your eyes peeled on this potential stock-split winner as it sails through the promising waves of AI technology in the coming years!