Key takeaways
View moreDespite trading at a premium to some traditional metrics, Broadcom's strong AI growth trajectory, successful VMware integration progress, and industry-leading margins suggest the stock is undervalued relative to its future potential. The company's strategic positioning in high-growth markets, particularly AI and infrastructure software, combined with its strong execution track record and improving financial metrics, indicate that current valuation multiples don't fully reflect its growth potential and competitive advantages.
- Broadcom's revenue growth is primarily driven by its AI and infrastructure software segments, with AI revenue increasing 77% year-over-year in Q1 2025.
- The acquisition of VMware has significantly increased Broadcom's debt, with long-term debt at $60.926 billion as of January 31, 2025, requiring careful management and deleveraging efforts.
- Broadcom's liquidity position is weaker than the industry average, with a current ratio of 1.00 and a quick ratio of 0.91, indicating potential short-term financial challenges.
- The company's focus on custom AI accelerators and collaboration with hyperscale customers positions it favorably in the rapidly growing AI market.
- Despite the high debt levels, Broadcom maintains strong profitability, with an EBITDA margin of 57.79% in the most recent quarter, and continues to return capital to shareholders through dividends.
- Broadcom has outperformed its peers AMD and TSM, as well as the benchmark XLK, in terms of historical performance and annualized returns, but exhibits higher volatility.
- Management guidance for Q2 2025 indicates continued revenue growth and a strong EBITDA margin, reflecting confidence in the company's strategic direction.
- The company faces risks related to the cyclical nature of the semiconductor industry, trade tensions, and regulatory compliance, which could impact its future performance.
- Broadcom's strategic initiatives, such as converting perpetual software licenses to full subscriptions and upselling customers to a full-stack VCF, are expected to drive future growth in the infrastructure software segment.
- The collaboration with NVIDIA on the VMware Private AI Foundation presents a significant opportunity for Broadcom to capitalize on the growing trend of enterprises running AI workloads on-prem.
Evaluation summary
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Company Overview:
- Broadcom Inc. (AVGO) is a global technology company that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. Its Semiconductor Solutions segment includes networking, wireless, storage, and broadband solutions. The Infrastructure Software segment provides solutions for managing and securing IT environments.
- Key products and services include networking solutions, wireless connectivity, storage solutions, broadband access, mainframe software, cybersecurity solutions, and virtualization software through its acquisition of VMware.
- The company's major customers include distributors, OEMs, and large enterprises across various industries.
- Benchmarks used for comparative analysis include the Technology Select Sector SPDR Fund (XLK), while industry peers include Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM).
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Financial Performance:
- Broadcom has demonstrated strong revenue growth, with sales increasing from $12.487 billion in the quarter ending April 30, 2024, to $14.916 billion in the quarter ending January 31, 2025. This represents a growth of 19.45% over three quarters.
- Net income has fluctuated, with a significant loss of $1.432 billion in the quarter ending July 31, 2024, primarily due to income taxes of $4.238 billion. However, net income rebounded to $5.503 billion in the quarter ending January 31, 2025.
- Gross profit margin has improved from 56.07% in the quarter ending April 30, 2024, to 64.68% in the quarter ending January 31, 2025.
- EBITDA margin has also increased from 46.77% to 57.79% over the same period.
- Return on Assets (ROA) has decreased from 8.28% to 6.06%, while Return on Equity (ROE) has decreased from 22.23% to 14.85%. Return on Invested Capital (ROIC) has decreased from 10.13% to 7.58%. These metrics are still favorable compared to the industry averages of -12.76%, -39.71%, and -23.26% respectively.
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Operational Efficiency:
- Total assets have decreased from $175.211 billion in the quarter ending April 30, 2024, to $165.358 billion in the quarter ending January 31, 2025. Total liabilities have also decreased from $105.250 billion to $95.569 billion over the same period.
- Working capital has fluctuated, with a low of $80 million in the quarter ending January 31, 2025, and a high of $5.131 billion in the quarter ending April 30, 2024.
- Net operating cash flow has increased from $4.580 billion in the quarter ending April 30, 2024, to $6.113 billion in the quarter ending January 31, 2025.
- Free cash flow to equity has also increased from $4.448 billion to $6.013 billion over the same period.
- Capital expenditure has remained relatively stable, ranging from $100 million to $172 million per quarter. Depreciation, depletion, and amortization have also been consistent, ranging from $2.174 billion to $2.611 billion per quarter.
- The company has returned capital to shareholders through dividends, with cash dividends paid ranging from $2.443 billion to $2.774 billion per quarter.
- The current ratio has decreased from 1.25 to 1.00, and the quick ratio has decreased from 1.16 to 0.91, indicating a weakening liquidity position. Both are below the industry averages of 4.36 and 3.57, respectively.
- The debt-to-equity ratio has decreased from 105.80% to 95.40%, indicating a decreasing financial leverage, but still higher than the industry average of 64.11%.
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Growth Opportunities:
- Broadcom's market expansion is focused on AI and infrastructure software, particularly through its acquisition of VMware.
- The company is investing heavily in R&D for next-generation AI accelerators, including a 2-nanometer AI XPU, and advanced networking solutions like the Tomahawk 6 switch.
- Geographic expansion plans are focused on regions with high demand for AI and cloud infrastructure, with a particular emphasis on hyperscale customers.
- The company's strategic focus areas include converting perpetual software licenses to full subscriptions and upselling customers to a full-stack VCF.
- Broadcom is collaborating with NVIDIA on the VMware Private AI Foundation to virtualize GPUs for enterprise AI workloads.
- Capital allocation strategies are focused on deleveraging the balance sheet through asset sales and debt repayments, while also returning capital to shareholders through dividends and share repurchases.
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Recent Developments and Market Sentiment:
- Broadcom's financial performance is increasingly tied to the growth of AI, with AI revenue significantly outpacing other segments.
- The company's strategy of collaborating with hyperscalers to develop custom AI accelerators is a key differentiator and a significant growth opportunity.
- The infrastructure software segment, particularly VMware, provides a stable and high-margin revenue stream, complementing the cyclical nature of the semiconductor business.
- The trend of enterprises running AI workloads on-prem is creating new opportunities for Broadcom's VMware Private AI Foundation.
- Advanced networking solutions are essential for scaling AI clusters, and Broadcom's expertise in this area provides a competitive advantage.
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Risks and Threats:
- Key risks include the high level of debt from the VMware acquisition, potential liquidity issues, and reliance on acquisitions for growth.
- Industry risks include the cyclical nature of the semiconductor industry, trade tensions, and evolving data privacy/security regulations.
- Competitive threats include other semiconductor and enterprise software companies like AMD, Intel, Cisco, Microsoft, and VMware.
- Regulatory risks include ongoing securities class action lawsuit related to VMware's historical disclosures about backlog and potential tax liabilities related to VMware's prior ownership by Dell.
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Valuation Analysis:
- Enterprise Value to EBITDA has increased from 31.91 in the quarter ending April 30, 2024, to 39.11 in the quarter ending January 31, 2025, but is still significantly lower than the industry average of 232.96.
- Enterprise Value to Sales has increased from 15.90 to 20.67 over the same period, but is still higher than the industry average of 12.19.
- Potential catalysts include continued growth in AI and infrastructure software, successful integration of VMware, and deleveraging of the balance sheet.
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Price Performance:
- Broadcom's stock price has shown significant volatility, with a recent upward trend.
- The stock price increased from $146.29 on April 4, 2025, to $248.71 on June 2, 2025.
- Broadcom has outperformed both the Technology Select Sector SPDR Fund (XLK) and its peers, Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), in terms of historical performance and annualized returns.
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Future Outlook:
- Management guidance for Q2 2025 includes consolidated revenue of $14.9 billion and an adjusted EBITDA margin of approximately 66%.
- Analysts expect continued growth in AI and infrastructure software, driven by hyperscale customers investing in next-generation Frontier models.
- Recent developments, such as the collaboration with NVIDIA on the VMware Private AI Foundation, are expected to drive future growth.
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Summary:
- Broadcom is a high-growth, high-risk company with significant opportunities in AI and infrastructure software.
- Strengths include strong revenue growth, high profitability, and a diversified product portfolio. Weaknesses include high debt levels and potential liquidity issues. Opportunities include continued growth in AI and infrastructure software, successful integration of VMware, and deleveraging of the balance sheet. Threats include the cyclical nature of the semiconductor industry, trade tensions, and regulatory risks.
- Overall financial health is strong, but the company needs to manage its debt and improve its liquidity position.
- Critical factors for future performance include the ability to sustain revenue growth, manage costs, improve profitability, and deleverage the balance sheet.
- Areas requiring further monitoring include revenue growth rates, gross margins, operating margins, net income, current ratio, debt-to-equity ratio, and free cash flow.
- Broadcom presents a compelling investment profile, with high growth potential balanced against identified risks. The company's position relative to analyzed industry trends and recent developments is favorable, but investors should be aware of the potential for volatility and larger drawdowns.
Price history
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Fundamentals
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Insights
- Broadcom has demonstrated strong revenue growth and profitability, driven by its diverse product portfolio and strategic acquisitions, particularly VMware.
- The company's liquidity position is below the industry average, suggesting potential challenges in meeting short-term obligations.
- Broadcom's high level of debt and reliance on acquisitions for growth pose risks that need to be carefully managed.
- The company's focus on AI and infrastructure software provides growth opportunities, but also requires significant R&D investment and effective integration of acquired businesses.
- Broadcom's ability to maintain its technological edge, manage costs, and effectively integrate acquired businesses will be critical to sustaining its competitive position and profitability.
Analysis
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Revenue - Broadcom has demonstrated strong revenue growth, driven by its diverse product portfolio and strategic acquisitions. - Sales/Revenue has shown a strong upward trend, indicating robust growth in the company's top line. - The growth rate is accelerating for Sales/Revenue, as the 3-year CAGR is less than the 5-year CAGR.
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Profitability
- Broadcom exhibits strong profitability, with increasing gross, operating, and net profit margins.
- The company has shown an ability to improve gross margins, but needs to manage operating expenses effectively.
- Profitability is influenced by non-recurring items, which should be carefully analyzed to understand the company's sustainable earnings.
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Liquidity
- Broadcom's liquidity position, as indicated by the current and quick ratios, is below the industry average, suggesting potential challenges in meeting short-term obligations.
- The current ratio is 1, which is less than 1, indicating potential liquidity issues.
- The Current Ratio and Quick Ratio are slightly decreasing, indicating a weakening liquidity position.
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Solvency
- Broadcom's solvency is characterized by a high level of financial leverage, as indicated by the debt-to-equity ratio.
- The total debt to total equity ratio is 95.4, which is high, indicating high financial leverage.
- The Total Debt to Total Equity Ratio is decreasing, indicating a decreasing financial leverage.
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Operational Efficiency
- Broadcom demonstrates efficient operations, with stable inventory levels and increasing accounts receivable.
- The company has shown an ability to improve gross margins, but needs to manage operating expenses effectively.
- The growth rate is accelerating for Cost of Goods Sold (COGS), as the 3-year CAGR is less than the 5-year CAGR.
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Cash Flow Analysis - Broadcom's cash flow from operations is strong, driven by net income and depreciation. - The company's free cash flow margin has remained relatively stable, indicating consistent profitability. - Net Operating Cash Flow is higher than the industry average, indicating strong cash generation from operations.
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Risk Factors
- Broadcom faces risks related to its high level of debt, potential liquidity issues, and reliance on acquisitions for growth.
- The company's high level of intangible assets reflects its acquisition-driven growth strategy, which carries integration and execution risks.
- The company's reliance on a small number of large customers and distributors, as well as its complex global supply chain, expose it to potential disruptions and concentration risks.
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Future Outlook
- Broadcom's future performance will depend on its ability to sustain revenue growth, manage costs, improve profitability, and deleverage its balance sheet.
- The company's focus on AI and infrastructure software provides growth opportunities, but also requires significant R&D investment and effective integration of acquired businesses.
- Key metrics to monitor include revenue growth rates, gross margins, operating margins, net income, current ratio, debt-to-equity ratio, and free cash flow.
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Financial statements
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Public filings
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- Broadcom has successfully diversified its business model by expanding into the high-growth infrastructure software market through the transformative acquisition of VMware
- However, the company faces heightened operational and financial risks from its increased debt load, integration challenges, and ongoing cyclicality in the semiconductor industry
- Broadcom's reliance on a small number of large customers and distributors, as well as its complex global supply chain, expose it to potential disruptions and concentration risks
- The company must navigate a challenging regulatory environment, including evolving data privacy/security rules and trade tensions, which could increase compliance costs and limit market access
- Broadcom's ability to maintain its technological edge, manage costs, and effectively integrate acquired businesses will be critical to sustaining its competitive position and profitability
Core Business and Operations:
- Broadcom Inc. is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions
- Key semiconductor products include networking, wireless, storage, and broadband solutions used in enterprise, data center, and consumer electronics
- Key infrastructure software solutions help enterprises manage and secure IT environments across mainframe, distributed, edge, and cloud platforms
- Major customers include distributors, OEMs, and large enterprises across various industries
- Key competitors include other semiconductor and enterprise software companies like AMD, Intel, Cisco, Microsoft, and VMware
Industry and Market Trends:
- Semiconductor industry is highly cyclical, with periods of high demand followed by oversupply and price erosion
- Increasing demand for AI-related semiconductor products and cloud/hybrid IT infrastructure software
- Ongoing trade tensions and tariffs between the U.S. and China impacting supply chains and market access
- Evolving data privacy, cybersecurity, and environmental regulations increasing compliance costs
Recent Events:
- Completed acquisition of VMware, Inc. in November 2023 for $84 billion in cash and stock
- Divested VMware's end-user computing business for $3.5 billion in July 2024
- Issued $8 billion in senior notes and repaid $16.8 billion in term loans in fiscal year 2024
Risk Factors:
- Adverse global economic conditions and trade tensions negatively impacting demand
- Dependence on a small number of large customers and distributors
- Cyclical nature of semiconductor industry and potential oversupply/price erosion
- Reliance on contract manufacturing and limited supplier base for critical components
- Cybersecurity threats and vulnerabilities in software products
- Regulatory compliance risks and potential legal/governmental investigations
- Integration and execution risks related to acquisitions and divestitures
Legal Matters:
- Ongoing securities class action lawsuit related to VMware's historical disclosures about backlog
- Potential tax liabilities related to VMware's prior ownership by Dell
Management's Discussion and Analysis:
- Revenue growth driven by strong demand for networking and AI semiconductor products, as well as contributions from VMware
- Gross margins impacted by higher amortization of acquired intangible assets from VMware acquisition
- Increased R&D and SG&A expenses due to VMware integration and higher stock-based compensation
- Significant increase in debt levels to finance VMware acquisition, with focus on deleveraging through asset sales and debt repayments
- Operating cash flows remained strong, supporting capital returns to shareholders through dividends and share repurchases
Earnings calls
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Earnings Report 2025Q1 (2025-03-06)
Key takeaways
- AI is the Dominant Growth Driver: Broadcom's financial performance is increasingly tied to the growth of AI, with AI revenue significantly outpacing other segments.
- Custom Silicon is a Key Differentiator: The company's strategy of collaborating with hyperscalers to develop custom AI accelerators is a key differentiator and a significant growth opportunity.
- Infrastructure Software Provides Stability: The infrastructure software segment, particularly VMware, provides a stable and high-margin revenue stream, complementing the cyclical nature of the semiconductor business.
- On-Prem AI Workloads are Gaining Traction: The trend of enterprises running AI workloads on-prem is creating new opportunities for Broadcom's VMware Private AI Foundation.
- Networking is Critical for AI Scale: Advanced networking solutions are essential for scaling AI clusters, and Broadcom's expertise in this area provides a competitive advantage.
Focus of management’s prepared remarks
- Record Financial Performance: Broadcom achieved record revenue and adjusted EBITDA in Q1 2025, driven by strong growth in both semiconductor and infrastructure software segments.
- AI Revenue Growth: AI revenue was a significant driver, with substantial year-over-year growth attributed to increased shipments of networking solutions to hyperscalers.
- R&D Investment in AI: The company is increasing R&D investment to develop next-generation AI accelerators, including a 2-nanometer AI XPU, and to scale AI clusters using advanced networking solutions like the Tomahawk 6 switch.
- Hyperscale Customer Engagement: Broadcom is deeply engaged with multiple hyperscale customers to develop custom AI accelerators, expanding its serviceable addressable market.
- Infrastructure Software Growth: The infrastructure software segment is experiencing significant growth due to the conversion from perpetual licenses to full subscriptions and upselling customers to a full-stack VCF.
- VMware Private AI Foundation: The company is collaborating with NVIDIA to offer the VMware Private AI Foundation, enabling enterprises to run AI workloads on-prem and virtualize GPUs.
- Q2 Guidance: Broadcom provided guidance for Q2 2025, including revenue targets for both semiconductor and infrastructure software segments, as well as an adjusted EBITDA margin target.
Focus of the analyst Q&A
- Expansion of AI Customer Base:
- Inquiries about the potential size and impact of the four new hyperscale partners engaged in developing custom AI accelerators.
- Questions about the long-term implications of the custom silicon trend and its potential upside for Broadcom.
- Second-Half AI Revenue Profile:
- Seeking clarification on the expected ramp in the second half of the fiscal year, particularly regarding the contribution of new three-nanometer AI accelerator programs.
- Concerns about potential changes in the revenue profile due to factors like AI model efficiency and strong CapEx outlooks from cloud and hyperscale customers.
- Impact of Tariffs and Geopolitical Factors:
- Concerns about potential disruptions from tariffs and geopolitical tensions on customer decision-making and supply chains.
- Questions about how Broadcom is navigating these challenges and whether they present opportunities for the company.
- XPU Design Wins and Deployment:
- Inquiries about the conversion rate from design wins to actual deployments, particularly in the XPU market.
- Questions about how Broadcom judges the success of design wins and ensures that deployments reach significant scale.
- Impact of AI Diffusion Rules and Regulations:
- Concerns about the potential impact of new regulations and AI diffusion rules on existing design wins and shipments.
- Questions about whether any of Broadcom's AI customers are located in China or are Chinese companies.
- Inference vs. Training Workloads:
- Seeking clarification on Broadcom's opportunity in the inference market and how it compares to the training market.
- Questions about whether a shift towards inference workloads would impact Broadcom's TAM or favor GPUs over XPUs.
- Networking and Connectivity Solutions:
- Inquiries about the importance of Broadcom's switch ASICs in large AI clusters and the factors customers consider when selecting networking solutions.
- Questions about the role of Ethernet in connecting large AI clusters and the advantages of Broadcom's networking portfolio.
- XPU Unit Growth and ASP:
- Seeking clarification on whether the four new hyperscale partners will contribute to the previously mentioned target of seven million XPU units by 2027-2028.
- Questions about the average selling price (ASP) of XPUs and how it might evolve over time.
- Optimization of Hardware and Software:
- Inquiries about how Broadcom is optimizing its hardware to work with hyperscalers' software and frontier models.
- Questions about the degree of information sharing and differentiation among the six hyperscale partners Broadcom is working with.
- Capital Allocation and M&A:
- Questions about potential M&A activities, particularly in light of recent headlines about potential targets.
Summary
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Financial Performance
Broadcom reported record Q1 2025 revenue of $14.9 billion, a 25% year-over-year increase. Adjusted EBITDA also reached a record $10.1 billion, up 41% year-over-year. The company exceeded its initial gross margin guidance due to higher infrastructure software revenue and a favorable semiconductor revenue mix. Q2 guidance includes consolidated revenue of $14.9 billion and an adjusted EBITDA margin of approximately 66%.
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Revenue Drivers
AI revenue was a significant growth driver, increasing 77% year-over-year to $4.1 billion in Q1. Infrastructure software revenue also contributed substantially, growing 47% year-over-year, driven primarily by VMware. Non-AI semiconductor revenue declined sequentially due to seasonal weakness in wireless, but broadband showed double-digit sequential recovery. The company is seeing increased bookings year-over-year, but non-AI semiconductor revenue is expected to be flattish sequentially in Q2.
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Profit Margins and Cost Management
Gross margin was 79.1% in Q1, benefiting from the revenue mix. Operating expenses were $2 billion, with $1.4 billion allocated to R&D. Adjusted EBITDA margin was 68%. The company anticipates a slight decrease in consolidated gross margin in Q2 due to revenue mix and increased R&D investment in leading-edge AI. The non-GAAP tax rate for Q2 and fiscal year 2025 is expected to be approximately 14%.
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Guidance and Outlook
Broadcom projects Q2 2025 consolidated revenue of $14.9 billion, representing a 19% year-over-year increase. Semiconductor revenue is expected to be $8.4 billion, up 17% year-over-year, with AI revenue reaching $4.4 billion, a 44% year-over-year increase. Infrastructure software revenue is projected at $6.5 billion, up 23% year-over-year. Adjusted EBITDA is expected to be approximately 66% of revenue.
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Strategic Initiatives
The company is focused on converting perpetual software licenses to full subscriptions and upselling customers to a full-stack VCF. Broadcom is also investing heavily in R&D for next-generation AI accelerators and networking solutions, including a 2-nanometer AI XPU and 100 terabit Tomahawk 6 switch. They are collaborating with NVIDIA on the VMware Private AI Foundation to virtualize GPUs for enterprise AI workloads.
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Management Commentary
Management emphasized the significant growth potential in AI, driven by hyperscale customers investing in next-generation Frontier models. They highlighted Broadcom's hardware expertise and its collaborative approach with hyperscalers to optimize large language models. The company reaffirmed its expectation that three hyperscale customers will generate a serviceable addressable market of $60 to $90 billion in fiscal 2027. Management also noted the trend of enterprises running AI workloads on-prem, driving demand for VMware Private AI Foundation.
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Industry and Market Conditions
The company sees a steady ramp in the deployment of XPUs and networking products. The recovery in non-AI semiconductors is slow, but broadband is showing signs of improvement. Management believes that new Frontier models and techniques are putting unexpected pressures on AI systems, making it difficult to serve all classes of models with a single system design point. They also noted the potential impact of geopolitical tensions and tariffs, but stated it's too early to determine the full effect.
Comparative analysis
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Benchmarks (as of 2025-06-02)
Technology Select Sector SPDR Fund (XLK)
- Performance Comparison:
- Broadcom Inc. (AVGO) has consistently outperformed the Technology Select Sector SPDR Fund (XLK) across all measured time periods. For instance, over the past year, AVGO has delivered a return of 90.45%, significantly higher than XLK's 11.33%. Similarly, over the past three years, AVGO has achieved a remarkable 370.6% return, dwarfing XLK's 70.64%. This consistent outperformance indicates that AVGO has been a more profitable investment compared to XLK.
- Risk and Return Analysis:
- AVGO has provided higher annualized returns compared to XLK. Over the past year, AVGO's annualized return was 90.45%, while XLK's was only 11.33%. However, AVGO has also exhibited higher annualized volatility. For example, in Q2 2022, AVGO's volatility ranged from 41.3% to 49.15%, while XLK's ranged from 37.06% to 42.35%. The maximum drawdown for AVGO was -41.15% on 04/04/2025, which is larger than XLK's maximum drawdown of -33.56% on 10/12/2022. This suggests that while AVGO offers higher returns, it also carries a higher risk profile due to its increased volatility and potential for larger drawdowns.
- Risk-Adjusted Performance:
- AVGO generally has a better Sharpe Ratio than XLK, indicating that it offers better risk-adjusted returns. Throughout the analyzed period, AVGO's Sharpe Ratios were consistently higher than those of XLK. AVGO's Beta is also higher than XLK's, and has increased over time, indicating that AVGO is more sensitive to market movements. As of Q2 2025, AVGO's Beta ranged from 1.99 to 2, while XLK's Beta ranged from 1.39 to 1.41.
- Overall Assessment:
- Broadcom Inc. (AVGO) has demonstrated superior performance compared to the Technology Select Sector SPDR Fund (XLK) across various metrics, including historical performance, annualized returns, and risk-adjusted returns. However, AVGO also exhibits higher volatility and larger drawdowns, indicating a higher risk profile. The increasing Beta of AVGO suggests that it is becoming more sensitive to market movements, which could amplify both gains and losses. While AVGO offers the potential for higher returns, investors should be aware of its increased risk and ensure it aligns with their risk tolerance and investment objectives.
Peers Price History(as of 2025-06-02)
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Performance Comparison:
- Broadcom Inc. (AVGO) has significantly outperformed Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) across all time periods analyzed. Over the past three years, AVGO has achieved a remarkable 370.6% return, dwarfing AMD's 7.84% and TSM's 116.72%. This trend of outperformance is consistent across shorter time frames as well, with AVGO showing superior returns year-to-date, and over the past one week, one month, six months, one year, and two years.
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Risk and Return Analysis:
- AVGO has demonstrated higher annualized returns compared to its peers. Over the past three years, AVGO's annualized return was 67.58%, significantly higher than AMD's 2.55% and TSM's 29.41%. While AMD exhibited the highest annualized volatility, AVGO generally had moderate volatility. The maximum drawdown for AVGO was -41.15% on 2025-04-04, which is less severe than AMD's -65.45% on 2022-10-14, but more severe than TSM's -56.62% on 2022-11-03. This suggests that while AVGO offers higher returns, it also carries a moderate level of risk.
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Risk-Adjusted Performance:
- AVGO generally exhibited higher Sharpe Ratios compared to AMD, indicating better risk-adjusted returns. TSM's Sharpe Ratios were also competitive, often surpassing AMD but generally lower than AVGO. The beta values for AVGO, AMD, and TSM were consistently above 1 throughout the analyzed period, indicating that these stocks are more volatile than the market.
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Overall Assessment:
- Broadcom Inc. (AVGO) presents a compelling profile compared to Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Co., Ltd. (TSM). AVGO has demonstrated superior historical performance, higher annualized returns, and competitive risk-adjusted returns as indicated by its Sharpe Ratio. While all three stocks exhibit beta values above 1, indicating higher volatility than the market, AVGO's moderate volatility and strong returns make it an attractive option. AMD, on the other hand, carries a higher risk profile due to its greater volatility and larger drawdowns. TSM offers a more stable risk profile but with lower returns compared to AVGO.
Peers Fundamentals(as of 2025-01-31)
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Market Position and Size:
- Broadcom Inc. (AVGO) stands out with a significantly larger market capitalization of $1,169,421.98 million compared to Advanced Micro Devices, Inc. (AMD) at $185,861.08 million. It is also greater than Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) at $1,010,418.85 million.
- AVGO's substantial market cap is supported by its significant revenue ($54,529 million), EBITDA ($28,826 million), and Net Income ($10,397 million), although TSM has higher revenue, EBITDA, and net income. AMD lags significantly behind both AVGO and TSM in these metrics.
- AVGO holds a dominant market position due to its size, particularly when compared to AMD. While TSM's revenue, EBITDA, and net income are higher, AVGO's market capitalization is still substantial, indicating a strong market presence.
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Profitability and Efficiency:
- AVGO demonstrates strong profitability with a Gross Profit Margin of 59.59%, exceeding AMD's 45.15% and TSM's 56.02%. All three companies are significantly above the industry average of -40.07%.
- AVGO's EBITDA Margin is 52.86%, which is greater than AMD's 21.54% but less than TSM's 68.81%. All three companies are significantly above the industry average of -1950.36%.
- AVGO's Net Profit Margin is 19.07%, which is greater than AMD's 8.03% but less than TSM's 41.68%. All three companies are significantly above the industry average of -1877.28%.
- AVGO demonstrates reasonable efficiency in generating returns, outperforming AMD but underperforming TSM.
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Financial Health and Stability:
- AVGO's liquidity position, as indicated by its Current Ratio of 1.0 and Quick Ratio of 0.91, is relatively weak compared to its peers (AMD: 2.8 and 1.97, TSM: 2.39 and 2.18, respectively) and the industry average (4.36 and 3.57, respectively).
- AVGO's Total Debt to Total Equity Ratio is 95.4, which is significantly greater than AMD's 8.17 and TSM's 23.69, indicating a more leveraged balance sheet.
- AVGO's Debt / EBITDA is 2.31, which is greater than AMD's 0.7 and TSM's 0.49, but less than the industry average of 12.97.
- AVGO's debt levels are high relative to equity but manageable in relation to its EBITDA.
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Valuation and Market Perception:
- AVGO appears to be highly valued by the market compared to its peers and industry standards, as indicated by its high Enterprise Value to Sales of 20.67 (AMD: 5.95, TSM: 8.41, Industry Average: 12.19), Price To Earnings of 119.96 (AMD: 84.03, TSM: 25.07, Industry Average: 67.67), Price to Book of 16.76 (AMD: 3.2, TSM: 7.29, Industry Average: 6.05), and Price to Sales ratios of 22.06 (AMD: 6.72, TSM: 10.45, Industry Average: 14.28).
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Cash Flow and Capital Management:
- AVGO demonstrates strong cash flow generation relative to its size, outperforming AMD but underperforming TSM.
- AVGO's Net Operating Cash Flow is $21,260 million, which is significantly greater than AMD's $3,459 million but less than TSM's $64,042.22 million.
- AVGO's Total Capital Expenditure is $526 million, which is less than AMD's $706 million and significantly less than TSM's $33,278.11 million.
- AVGO's Free Cash Flow is $20,734 million, which is significantly greater than AMD's $2,753 million but less than TSM's $30,764.11 million.
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Growth and Future Prospects:
- AVGO shows higher revenue and EBITDA growth in the most recent year compared to the peer group average.
- AVGO shows lower net income, basic earnings per share, free cash flow, free cash flow margin, and EBIT margin growth in the most recent year compared to the peer group average.
- AVGO's net income, basic earnings per share, free cash flow, free cash flow margin, and EBIT margin growth have been consistently lower than the peer group average over the past five years.
- AVGO's revenue and EBITDA growth have been relatively stable over the past five years, while net income and basic earnings per share have experienced significant fluctuations.
- AVGO's 3-year CAGR for sales/revenue and EBITDA is greater than its 5-year CAGR, indicating accelerating growth in recent years.
- AVGO's 3-year CAGR for net income, basic earnings per share, free cash flow, free cash flow margin, and EBIT margin is less than its 5-year CAGR, indicating decelerating growth in recent years.
- AVGO's growth is concentrated in revenue and EBITDA, with weaker performance in profitability metrics.
- The recent deceleration in net income, basic earnings per share, free cash flow, free cash flow margin, and EBIT margin growth could be a potential red flag, as it indicates that revenue growth is not translating into improved profitability.
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Potential for Investment:
- AVGO presents a mixed investment picture. Its strengths include a dominant market position, strong profitability, and substantial cash flow. However, its high debt, weak liquidity, and high valuation are potential concerns. Investors should carefully consider its growth prospects and ability to manage its debt load.
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Key Risks and Considerations:
- AVGO's high debt-to-equity ratio and low current and quick ratios pose financial risks.
- The company's underperformance in net income growth compared to peers is a concern.
- AVGO's high valuation suggests that the market has high expectations for its future performance, which may not be met.
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Overall Assessment:
- AVGO exhibits strong profitability and cash flow generation but carries a significant debt load and has relatively weak liquidity. Its valuation is high, reflecting market expectations for future growth. While its revenue and EBITDA growth are solid, its net income growth lags behind peers.
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