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Broadcom (NASDAQ: AVGO) stock began trading at its new, more accessible price of just under $170 a share. Following the highly anticipated 10-for-1 stock split on July 12, the artificial intelligence chipmaker has become an enticing option for investors seeking to capitalize on its innovative technologies at a more affordable entry point.

Despite the lower price, investors have been surprisingly cautious. The daily trading volume of the smartphone chipmaker has plummeted from an average of over 38 million shares in the first 10 trading days of July to just 22.8 million shares yesterday. This sudden dip in trading activity raises questions about market sentiment and investor confidence.

Is the hesitation solely due to the stock split, or are there broader concerns at play? Some speculate that fears of a potential slowdown are causing investors to hold back. Wall Street analysts predict only a modest 10% gain for Broadcom stock over the next year, which may be tempering investor enthusiasm in the short term.

However, the long-term outlook for Broadcom remains exceptionally strong. With the growing demand for its AI-powered data center accelerators and its strategic positioning in the tech industry, AVGO stock presents a compelling buy-and-hold opportunity. This is why I remain bullish on Broadcom's post-split performance for the next five years.

Key Points

• Following the 10-for-1 stock split, Broadcom (NASDAQ: AVGO) is now available at a fraction of its original price, making it an irresistible bargain.

• Despite a recent dip in daily trading volume, AVGO remains a golden opportunity for investors.

• With skyrocketing demand for its AI-powered data center accelerators, AVGO is poised for explosive growth, making it a must-have in your portfolio.

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AI-Powered Revolution

Each investor holding Broadcom stock on Friday received nine additional shares, effectively lowering the price from around $1,700 to $170. This stock split did not alter the strong fundamentals of AVGO but is often viewed as a bullish signal by the stock market. Broadcom stock has surged 53% in 2024 and nearly doubled over the past year, driven by the rapid advancements in artificial intelligence, which have elevated the entire tech sector. Broadcom, known for its smartphone silicon used in major handsets like Apple’s, is now a key player in the AI revolution, with its chips found in products from giants like Alphabet and Meta Platforms.

Expanding Horizons

Broadcom, while remaining a leader in mobile chips, is now making significant strides in the data center market. It has developed custom technologies optimized for AI-powered data center applications, catering to the needs of hyperscalers requiring complex computing capabilities. This shift has attracted major clients such as Alphabet and Meta Platforms due to Broadcom's cost-effective and energy-efficient solutions. AI chip sales are expected to constitute 35% of Broadcom’s semiconductor sales this year, up from 15% last year, potentially bringing in $11 billion in revenue.

Looking Ahead

Earlier this year, concerns about a slowdown in the AI market loomed over technology stocks. However, companies like Nvidia and Taiwan Semiconductor Manufacturing have continued to report robust growth, and Broadcom is no exception. Its AI chip segment, accounting for nearly all of its 12% organic sales growth, has seen a 35% sequential increase to $3.1 billion. Despite a 30% decline in its non-AI chip business, Broadcom’s pivot to AI infrastructure has been both timely and lucrative. Though the stock trades at a premium, its substantial growth justifies the valuation, making AVGO a strong candidate for long-term investors.

Strengths

• Strong AI Integration: Broadcom’s strategic focus on AI-powered data centers positions it at the forefront of a booming industry.

• Diverse Client Base: Partnerships with tech giants like Alphabet and Meta Platforms ensure a stable revenue stream.

• Robust Growth: Significant growth in AI chip sales underscores Broadcom's potential for sustained long-term performance.

Weaknesses

• Valuation Concerns: Broadcom's stock is relatively expensive, trading at 28 times next year’s earnings.

• Dependence on AI Market: Broadcom's future growth heavily relies on the continued expansion of the AI market.

• Non-AI Segment Decline: The 30% decline in the non-AI chip business indicates potential vulnerabilities in other segments.

Potential

• AI Market Leadership: Broadcom’s advancements in AI technology could cement its position as a market leader.

• Revenue Growth: Increasing demand for AI chips could significantly boost Broadcom’s revenue.

• Strategic Partnerships: Expanding relationships with major tech companies could further enhance Broadcom’s market presence.

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Summary:

Broadcom’s recent 10-for-1 stock split has made its shares more accessible, coinciding with a significant rise driven by advancements in AI technology. Despite a temporary dip in trading volume, Broadcom’s long-term prospects remain robust, thanks to its strategic pivot to AI-powered data center applications and strong partnerships with tech giants like Alphabet and Meta Platforms. While its non-AI segments have faced challenges, the overall growth potential and market leadership in AI technology make AVGO a compelling investment.

Conclusion:

Broadcom’s strategic focus on AI and data centers positions it for substantial growth, despite a premium valuation. The recent stock split enhances its appeal to a broader investor base, making it an attractive buy-and-hold opportunity. Broadcom’s ability to capitalize on the booming AI market and its strong client relationships underscore its long-term investment potential.

Final Thought:

As Broadcom continues to innovate and expand its footprint in the AI landscape, will its strategic pivots and market leadership be enough to sustain its impressive growth trajectory? Investors may want to consider this as they evaluate the long-term potential of AVGO stock.

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