Broadcom (AVGO Quick QuoteAVGO - Free Report) shares have gained 26.7% year to date, outperforming the Zacks Computer & Technology sector’s return of 16.5%. It has been benefiting from the growing demand for AI infrastructure and the strong deployment of generative AI.

Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers. Its latest 400G PCIe Gen 5.0 Ethernet adapters are poised to transform the data center landscape by addressing the escalating connectivity demands of AI ecosystems.

Broadcom’s new adapters are the industry’s first to utilize 5 nm process technology, leading to superior power and thermal efficiency. This advancement allows the adapters to drive passive copper cables up to five meters or ultra-low power linear pluggable optics transceivers. Paired with Broadcom’s high-radix Ethernet switches, these adapters significantly boost rack density using standard air-cooling technology.

The demand for higher data transfer speeds in AI networks is rapidly increasing. Broadcom’s third-generation RoCE pipeline, low-latency congestion control, and innovative telemetry features make these adapters ideal for high-bandwidth, high-stress environments typical of AI infrastructure. The new portfolio caters to the massive data processing requirements of training large language models, supporting larger server clusters with scalable, high-bandwidth, low-latency connectivity.

Broadcom’s portfolio offerings include foundational technologies and advanced packaging capabilities aimed at building the highest performance, lowest power custom AI accelerators is expanding its footprint in the next-gen AI infrastructure domain.
 

Broadcom Inc. Price and Consensus

Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote

Its Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch. This groundbreaking product integrates cutting-edge silicon photonics technology with Broadcom’s renowned StrataXGS Tomahawk 5 switch chip, setting a new standard for efficiency and performance in AI infrastructure. Tomahawk 5 provides a major performance boost for AI and machine learning infrastructure.

Its VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters. AVGO offers the industry’s first end-to-end PCIe connectivity portfolio with its new PCIe Gen5/Gen6 retimers in combination with PEX series switches.

AVGO’s Sian BCM85822 800G PAM-4 DSP PHY solution is suitable for AI workloads at scale. The high-performance Jericho3-AI fabric for AI networks also helps enterprises efficiently handle ever-increasing AI workload demands.

Strong Partner Base Aids Prospect

Broadcom’s strong partner base, which includes the likes of Alphabet (GOOGL Quick QuoteGOOGL - Free Report) , Comcast (CMCSA Quick QuoteCMCSA - Free Report) and Celestica (CLS Quick QuoteCLS - Free Report) , is a positive.

AVGO recently entered into an expanded partnership with Alphabet’s Google Cloud aimed at accelerating innovation for enterprises. The collaboration encompasses various aspects, including optimizing Broadcom’s VMware workloads for Google Cloud, joint go-to-market initiatives, enhancing the offerings on Google Cloud Marketplace, and integrating Broadcom’s products with Google Cloud’s generative AI capabilities.

Broadcom and Comcast are collaborating to develop the world’s first AI-powered access network with a new chipset that embeds AI and ML within the nodes, amps and modems that comprise the last few miles of Comcast’s network. Meanwhile, Celestica’s DS5000 high-performance 800GbE switch is based on the Broadcom StrataXGS Tomahawk 5 Ethernet switch chip.

Its strong partner base, along with an expanding portfolio, is expected to boost Broadcom’s AI dominance. It now expects fiscal 2024 AI revenues of roughly $10 billion (higher than the previous guidance of $7.5 billion) and to account for 35% of semiconductor revenues (higher than the previous guidance of 25%).

Networking revenues are expected to rally 35% year over year, driven by the accelerating deployment of networking connectivity and the expansion of AI accelerators within hyperscalers.

For fiscal 2024, AVGO still expects revenues of $50 billion and adjusted EBITDA margin of 60%.

The Zacks Consensus Estimate for fiscal 2024 is pegged at $50.54 billion, suggesting growth of 41.09% year over year. The consensus estimate for earnings is pegged at $47.07 per share, down 0.4% over the past 30 days, indicating 11.41% year-over-year growth.

Conclusion

Broadcom currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential over the long run. However, challenging macroeconomic conditions, including persistent inflation, may hamper growth prospects in the near term. The sluggish demand environment in the enterprise and telecommunication end-markets is a headwind, along with continued weakness in the server storage segment.

Broadcom’s valuation looks stretched at the current level, as reflected by the Value Score of F. Hence, it would be prudent for investors to wait for a better entry time.