2024-07-26 18:25:22 ET
Summary
- While Broadcom shares have performed well YTD (including going into a stock split), I believe shares have run up too much.
- Geopolitical tensions between the US, China, and Taiwan could impact Broadcom's operations and revenue, with potential retaliatory measures affecting the semiconductor industry.
- TSMC's plans to increase prices for clients like Broadcom, along with concerns about Broadcom's high valuation and reliance on China, suggest a potential decline in the stock price.
- Their ROCE ratio shows that returns on capital are trailing the five-year average. If their ROCE is historically low during a strong AI boom, I expect returns to go even lower in the future.
Investment Thesis
Broadcom Inc. ( AVGO ) has had an impressive run for the first half of 2024 as investors have turned to the name as a way to play the custom AI chip game as companies like Alphabet Inc. (GOOG) ( GOOGL ) ( and now OpenAI ) turn to the chip company to make custom AI chips for their data centers. More recently, investors were excited at the prospect of the stock doing a 10:1 stock split that was meant to make each share more affordable for retail investors, further helping to drive the stock higher.
I believe this split (much like the Nvidia split earlier this year) was supposed to generate significant investor interest due to the company's 43% revenue growth in 2Q that was fueled by the AI boom. Despite the expectation, the stock has not experienced the anticipated uptick....
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Broadcom: Worsening Geopolitical Environment (Rating Downgrade)