Broadcom Stock Outlook: Why AI Boom and VMWare Deal Spell Big Gains Ahead

Broadcom’s (NASDAQ:AVGO) stock is an optimistic buy in line with high AI and networking capabilities. In fiscal Q2 2024, Broadcom had net revenue of $12.5 billion, a 43% year-over-year (YOY) increase. Excluding VMware, Broadcom’s revenue grew by 12%, primarily due to a 280% surge in AI revenue. Next year, Broadcom’s AI and networking revenue may grow 40% year-on-year, with seven of the largest eight AI clusters using Broadcom Ethernet solutions. The company anticipates all mega-scale GPU deployments will be on Ethernet next year. Broadcom uplifted its fiscal 2024 revenue guidance to $51 billion, a 42% annual increase. Similarly, the adjusted EBITDA is projected to be 61% of revenue. Moreover, this optimistic outlook marks high AI demand and productive integration of VMware. Here, the focus is on Broadcom’s AI and networking growth, strategic VMware integration and solid financial performance. In short, these factors make Broadcom stock a good investment choice. Broadcom’s AI Revenue and Networking Growth: Broadcom’s AI revenue reached a record $3.1 billion in Q2 2024. This growth counters the cyclical weakness in semiconductor revenue. Networking revenue also surged, reaching $3.8 billion — a 44% increase YoY, driven by high demand from hyperscalers for AI networking and custom accelerators. Broadcom’s advanced tech, such as the PAM-5 and Jericho3 switches, have doubled sales. Moreover, Broadcom’s leadership in optical interconnects for AI data centers has further driven growth. The company is developing next-generation switches and optics for 1.6 terabit connectivity. This advancement ensures Broadcom remains at the forefront of AI and networking technologies. The company expects mega-scale GPU deployments to be entirely on Ethernet next year. VMware Integration and Software Growth Broadcom’s integration of VMware has been successful, significantly contributing to revenue growth. Infrastructure software revenue reached $5.3 billion in Q2 2024, a 175% YoY increase, with VMware contributing $2.7 billion. The transition to a subscription licensing model for VMware products has been smooth, with 3,000 of Broadcom’s largest customers signing multi-year contracts. Further, this integration has streamlined VMware’s product offerings, reducing its portfolio to four core products. The go-to-market flow has also been simplified, eliminating channel conflicts. These efforts have driven annualized booking value (ABV) for VMware products from $1.2 billion in Q1 to $1.9 billion in Q2. Finally, Broadcom’s consolidated software portfolio’s ABV grew from $1.9 billion to $2.8 billion. This growth demonstrates VMware’s progressive integration and potential with Broadcom stock. Financial Performance and Prospects Broadcom’s performance in Q2 2024 was solid, with gross margins reaching 76.2% and operating income of $7.1 billion. Free cash flow for the quarter was $4.4 billion, representing 36% of the top line. A ten-for-one forward stock split makes its stock more affordable. This optimistic outlook emerges from high AI and networking revenue and the sharp integration of VMware. One should watch for continued growth in these areas and Broadcom’s strategic partnerships and technological advancements. In short, Broadcom’s stock is a solid buy due to its leadership in AI and networking technologies. Investors should monitor continued dominance in these areas and its strategic partnerships to maximize price returns and feel secure about the company’s competitive position, supporting the buy rating for Broadcom stock. On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article. Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.Semiconductor, TechnologyGrowth Stocks