Christmas came early for one US growth stock as it joined one of the most exclusive clubs on Wall Street: the trillion-dollar club. It’s now joimed the ranks of Nvidia, Apple, Microsoft and other tech giants as the 10th company globally to reach $1trn.
Broadcom (NASDAQ: AVGO) rallied last Thursday (12 December) after posting its Q4 and full-year 2024 results, far outperforming analyst expectations.
Revenue for Q4 was $13.1bn, up 47% year on year, while earnings per share (EPS) came in at $1.25 — way ahead of the $1.13 estimated.
For 2025, it expects the performance to continue going from strength to strength. Revenue is projected to reach $14.6bn, with EBITDA making up two-thirds of that.
Growth drivers
Over the past decade, the semiconductor company has made several acquisitions, helping it branch out into a range of new products and services. These include CA Technologies, which it bought for $19bn in July 2018, and later security software company Symantec for $10.7bn in August 2019.
But the most critical acquisition was that of VMware, purchased for $69bn in November 2023.
The successful integration of the virtualisation software was noted as a key driver of growth. It contributed $3.8bn in Q4 revenue, helping boost the company’s Infrastructure Software segment revenue by 200%. Its annualised booking value (ABV) climbed to $2.5bn, up 32% quarter on quarter.
CEO Hock Tan said VMWare is on track to achieve or exceed its $8.5bn adjusted EBITDA target by the end of 2025.
However, the takeover still raised a few eyebrows. Some customers have voiced concerns that service quality may decline under Broadcom’s more cost-effective operational style. There’s an ongoing risk that this may drive some customers to seek alternatives.
Riding the AI train
A big chunk of this year’s growth is attributed to the artificial intelligence (AI) boom dominating markets.
Broadcom’s AI-enhanced ethernet products like Tomahawk 5 and Jericho3AI have helped catapult it onto centre stage. Its products now power much of the hardware that AI services rely on, including networking, wireless, data storage and wireless systems.
Revenue from the sector increased 220% year-on-year, driven by “our leading AI XPUs and Ethernet networking portfolio,” said Tan.
Looking ahead
Research from MarketsandMarkets predicts the global AI market will reach $1.3trn by 2030, up from $214.6bn today. This could equate to compound annual growth of 35.7% for investors.
However, it’s a highly competitive field dominated by market leader Nvidia. Exactly how much of the market Broadcom can retain remains to be seen. Losing a key client like Apple or Samsung would eliminate much of the company’s profit.
It could also suffer losses if US-China trade tensions cause supply chain issues.
Both these risks could derail performance in 2025.
What’s more, at $225 per share, it isn’t cheap and its forward price-to-earnings (P/E) ratio of 36.6 looks fairly high. While that’s common for rallying tech socks, it could still stifle future growth.
Overall, I think there’s still a lot of growth potential in the stock. But with Christmas coming, I don’t have spare cash to buy the stock today. It’s definitely on my list though and I’ll consider it again after Donald Trump takes office in January.
