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Broadcom (NASDAQ: AVGO) has been an epic investment, and not just for those shareholders who have gotten more acquainted with the business in the last year of artificial intelligence (AI) hype. Broadcom's share prices soared more than 2,500% in the last 10-year period, obliterating average semiconductor industry returns for longtime shareholders (of which I'm a very happy one).
CEO Hock Tan has done a mind-bogglingly good job at acquiring tech assets that address growth markets for the semiconductor and software industries, all the while squeezing best-in-class profit margins from them. However, after an epic run-up the last couple of years, is it time to sell some Broadcom stock?
Broadcom sails through the semiconductor industry downturn
If you haven't heard, the semiconductor industry -- with the exception of data center AI chips, led by Nvidia -- has been in a brutal downturn. It all started with smartphone and PC chips in late 2022, extended to cloud and network computing equipment last year, and has now even hit the automotive (including electric vehicles) and industrial automation markets this year.
Broadcom is a hybrid semiconductor designer. It retains a little bit of manufacturing in-house (though Taiwan Semiconductor Manufacturing handles the majority of its chipmaking work), as well as a growing enterprise software lineup now led by the VMware acquisition. Its "broad" (as its name implies) tech know-how helped Broadcom stay in growth mode over the last few years.
Q1 fiscal 2024 (the three months ended in January 2024) got the year started on a strong foot. Semiconductor segment sales were up 4% year over year. And even backing out the inclusion of VMware, which was acquired late in calendar year 2023, Broadcom's software segment is heating up again too (due to existing customer upsells using the VMware assets). Management appears to be sitting on yet another run of positive financial gains.
| Broadcom Sales by Segment | Q1 Fiscal 2024 | Change (YOY) | Fiscal 2024 Guidance |
|---|---|---|---|
| Networking (including AI and computing offload) | $3.3 billion | 46% | 35% |
| Wireless (mostly Apple) | $2 billion | (4%) | Flat |
| Storage connectivity | $887 million | (29%) | Down mid-20% range |
| Broadband | $940 million | (23%) | Down 30% |
| Industrial | $215 million | (6%) | Down high-single-digit % |
| Total semiconductor sales | $7.4 billion | 4% | Up mid- to high-single-digit % |
| Infrastructure software | $4.6 billion ($2.1 billion from VMware) | 156% (39% when excluding VMware) | $20 billion |
| Total Broadcom revenue | $12 billion | 34% (11% when excluding VMware) | $50 billion (including VMware) |
Data source: Broadcom. YOY = year over year.