AVGO Expands AI Offerings for Telecom Operators: Is the Stock a Buy?

Broadcom AVGO is expanding portfolio offerings for telecom operators with the general availability of the BCM68660 and BCM55050, the industry’s first merchant silicon 50G PON Optical Line Terminal-Optical Network Unit (OLT-ONU) devices.Embedded in these devices is a neural processing unit that will accelerate the deployment of AI and machine learning at the edge by telecom operators working on 50G fiber broadband networks. The BCM68660 50G PON OLT SoC interoperates with the BCM55050 50G PON ONU and other available ITU standards-based 50G ONUs. AVGO, through these devices, now offers a complete end-to-end 50G PON ecosystem of solutions for 50G fiber broadband to telecom operators. This is a notable addition to Broadcom’s expanding portfolio that is suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers.Broadcom’s Fiscal 2024 AI Revenues to Hit $12 BillionBroadcom’s strong portfolio is expected to drive AI revenues, which AVGO now expects to be more than $12 billion for fiscal 2024. Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $51.58 billion, suggesting growth of 44.01% year over year.The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at $4.82 per share, up a penny over the past 30 days, indicating 13.95% year-over-year growth. Broadcom Inc. Price and Consensus Broadcom Inc. price-consensus-chart | Broadcom Inc. QuoteAVGO’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.28%.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.AVGO Shares Ride on Strong Portfolio, Rich Partner BaseBroadcom shares have surged 57% year to date, outperforming the Zacks Computer & Technology sector’s gain of 22.3% and the Zacks Electronics - Semiconductors industry’s 32.7%.AVGO Outperforms Sector YTD Image Source: Zacks Investment ResearchAVGO is benefiting from strong demand for its networking products. The acquisition of VMware has benefited Infrastructure software solutions. Broadcom’s strong partner base, including Arista Networks, Dell Technologies DELL, Juniper and Supermicro, has been a key catalyst.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. The high-performance Jericho3-AI fabric for AI networks helps enterprises efficiently handle ever-increasing AI workload demands. Broadcom’s latest 400G PCIe Gen 5.0 Ethernet adapters address the escalating connectivity demands of AI ecosystems. Its Bailly is the world’s premier 51.2 terabits per second (Tbps) co-packaged optics Ethernet switch. AVGO’s VCSEL, EML and CW laser technologies enable high-speed interconnects for front-end and back-end networks of large-scale generative AI compute clusters.AI Focus to Boost Broadcom’s ProspectsStrong demand for Broadcom’s application-specific integrated chips (ASICs), which are designed to support AI and machine learning and make these tasks more efficient aids top-line growth. Alphabet GOOGL and Meta Platforms META are notable users of Broadcom’s ASICs.In the third quarter of fiscal 2024, Networking revenues of $4 billion soared 43% year over year and contributed 55% to Broadcom’s semiconductor revenues. AVGO witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.Custom AI accelerators grew 3.5 times year over year. Tomahawk 5 and Jericho3-AI grew more than four times year over year, while AVGO’s optical lasers and PIN diodes used in optical interconnects grew three-fold in the fiscal third quarter. PCI Express switches shipment more than doubled. Broadcom has started shipping its industry-leading 5 nanometer, 400 gigabit per second NICs and 800 gigabit per second DSPs.AVGO Shares Trading at a PremiumAVGO stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.In terms of the forward 12-month Price/Sales ratio, AVGO is trading at 13.71X, higher than its median of 11.66X and the sector’s 6X.Price/Sales Ratio (F12M) Image Source: Zacks Investment ResearchConclusionThe Growth Score of C reflects apprehensions over AVGO’s prospects, which, along with stretched valuation, makes Broadcom a risky bet. However, Broadcom’s strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential. We believe these factors justify the premium valuation.Broadcom currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Dell Technologies Inc. (DELL): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Meta Platforms, Inc. (META): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks