Broadcom is having its own Nvidia moment as shares rise 20% on week – FXStreet
Clay Webster
FXStreet
Broadcom (AVGO) stock exploded 12% on Thursday, quite a feat for a company already valued at more than half a trillion dollars. In total, AVGO has gained more than 20% this week, putting it ever closer to the $1 trillion club.
Trading up 2% on Friday near $790 billion in total market cap, Broadcom could become the seventh US company to achieve the trillion dollar club. Only Berkshire Hathaway (BRK-B) at $875 billion and Eli Lilly (LLY) at $837 billion stand in its way. This is becoming more believable now that Nvidia’s (NVDA) 90% market share of the chips used in artificial intelligence (AI) has propelled it to a $3 trillion market cap.
Major indices are lower on Friday after the University of Michigan Consumer Sentiment Index for June arrived at 65.6, well below the prior 69.1 reading. The consolidation phase is well-earned after the NASDAQ notched four straight winning sessions, which was caused by a lower inflation report from the US Consumer Price Index (CPI).
Broadcom produces a heavy array of semiconductor components used by customers like Apple (AAPL) and Microsoft (MSFT), especially chips used for connectivity, as well as infrastructure software that includes its recent acquisition of VMWare.
On Wednesday’s fiscal second-quarter result announcement, adjusted earnings per share rose 6% from a year earlier, but revenue soared by 43% in that same time period. The $10.96 per share bested Wall Street estimates by 12 cents, while revenue was $480 million above the consensus.
Revenue related to artificial intelligence (AI) products reached $3.1 billion in the quarter, which surprised some analysts.
“This 12% organic growth in revenue was largely driven by AI revenue, which stepped up 280% YoY to $3.1 billion, more than offsetting continued cyclical weakness in semiconductor revenue from enterprises and telcos,” said CEO Hock Tan on the earnings call.
Additionally, full-year guidance was pushed above the $50.6 billion revenue consensus to $51 billion.
The biggest difference was seen in the infrastructure software segment in which Broadcom saw revenue rise from $1.925 billion a year earlier to $5.285 billion, largely due to the incorporation of its VMWare acquisition.
A semiconductor is a term for various types of computer chips. Officially called semiconductor devices, these computer chips rely on semiconductor materials like silicon and gallium arsenide to process the electrical current that produces the modern world of computing. They come in many shapes, sizes, enhancements and configurations such as diodes, transistors and integrated circuits to more complicated applications like DRAM memory, simple processors and even GPUs.
First, there are the pure chip designers, such as Nvidia, AMD, Broadcom and Qualcomm. These companies use sophisticated software to design and test chips. Second, there are the equipment manufacturers that provide the machines necessary to build computer chips. These include ASML and Lam Research. Then, there are foundries that manufacture the chips. These include Taiwan Semiconductor and GlobalFoundries. Last of all are the integrated device manufacturers who design their own chips and additionally manufacture themselves. These include Samsung and Intel.
It is the observation that the number of transistors in an integrated circuit doubles every two years. The “law” is named after Gordon Moore, who founded Fairchild Semiconductor and later Intel. The doubling is possible due to the shrinking size of process nodes or parts in the computer chip. In 1971 the advanced commercial manufacturing had reached 10 microns in width. In 1987 semiconductor technology had advanced to 800 nanometers in width. By 1999, this process had moved to 180 nanometers. By 2007, the size had dropped to 32 nanometers, and this fell all the way to 3 nanometers in 2022, which is close to the size of human DNA.
In 2022, the global semiconductor industry had revenues just under $600 billion. In total, the industry shipped 1.15 trillion semiconductor units in 2021. The leading nations involved in the semiconductor supply chain are Taiwan, the United States, China, the Netherlands, South Korea, Japan and Israel.
Now sitting at all-time highs, Broadcom still isn’t priced for perfection. It’s forward price-to-earnings ratio is an acceptable 35. Nvidia trades near 48, while Arm Holdings (ARM) sits above 100. And, obviously, the stock has been in a long-term uptrend. AVGo has gained 100% in the past year and 500% over the past five years.
Trading above $1,700, Broadcom management has decided to enact a 10-for-1 stock split in mid-July, which should foment more retail buying and keep the stock trading in an uptrend.
The daily chart below shows that Broadcom continues to hit higher lows and often experiences buying pressure when it contracts to either its 50-day or 100-day Simple Moving Average (SMA). Additionally, the $1,400 to $1,445 range is a good entry point in that is amounted to strong resistance in both March and May of this year.
Broadcom daily stock chart
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EUR/USD stays under bearish pressure and trades at its lowest level since early May below 1.0700. Unabated US Dollar demand amid risk aversion and looming EU political uncertainty exert downside pressure on the pair heading into the weekend.
GBP/USD extends its decline on Friday and trades at its lowest level in nearly a month below 1.2700. In the absence of high-tier data releases, the US Dollar continues to benefit from souring market mood, forcing the pair to stretch lower in the second half of the day.
Following Thursday's pullback, Gold holds its ground on Friday and trades in positive territory near $2,330. The benchmark 10-year US Treasury bond yield edges lower toward 4.2%, helping XAU/USD push higher ahead of the weekend.
Monero price has encountered resistance at a critical level. The technical outlook suggests a potential short-term correction as momentum indicators signal a bearish divergence.
It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.
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