I'm Buying This 1 Stock to Get Rich (Without Getting Lucky)

broadcom hitting a new record intraday high today following strong earnings also a 10 for one stock split hey maybe it could even push out Tesla and the mag 7 you should be putting yet more money into a broadcom into an Nvidia into some other AI play this hyper growth phase in the 7s will probably go on for years broadcom is pretty much giving investors what they wanted something big is happening at broadcom they're about to do a 10 for one stock split and the stock has rocketed up by over 50% this year alone and whenever I see that kind of growth there's really only one question left to ask could broadcom be the next Nvidia stock or are their best days already behind them your time is valuable so let's get right into it first things first I'm not here to keep you hostage so here's everything I'm going to talk about in this video I'll cover what broadcom actually does and how they compete with Nvidia their biggest competitive advantages versus other semiconductor companies I'll go through their latest earnings call and their upcoming 10 for one stock split and of course whether I think that broadcom stock is a good investment as a result even after shooting up by around 50% so far this year all right whether or not you've heard of broadcom before it's worth understanding the science behind this stock because you're probably already holding it broadcom is currently the eighth biggest holding in the S&P 500 right above Eli Lily and Warren Buffett's birkshire hathway and it's the fifth biggest company in the NASDAQ 100 putting it above companies like meta platforms Tesla and netx Netflix that also makes broadcom the second largest AI chip company in the world right behind Nvidia and that's not by accident according to broadcom's CEO Hawk tan more than 99. 5% of all internet traffic Touches at least one broadcom chip Jim I got to tell you in 99. 5% of every bit of data that flows in the internet will cross at least one on more broadcom chip the reason that broadcom dominates the world's Network infrastructure is because that's almost all they focus on broadcom only has two business segments semiconductor Solutions which accounts for about 58% of their revenue and infrastructure software which makes up the other 42% so let's start there broadcom's semiconductor Solutions focus on wireless networking network interface cards high performance switches and custom application specific integrated circuits or as6 it's important for investors to understand that broadcom's as6 are fundamentally different from nvidia's gpus at a high level A6 actually have better performance per dollar but at the cost of being much less general purpose after all they're application specific so they have a very narrow set of workloads that they can work on that's why broadcom really only sells as6 for AI workloads to hyperscalers that can deploy enough of them to justify the costs of Designing and making them in the first place otherwise it would be better to go with an off-the-shelf general purpose chip like a CPU or a GPU here's a quick clip of Bernstein's senior semiconductor analyst Stacy Rasin explaining why broadcom might be an even better stock to buy now than AMD which makes gpus that directly compete with Nvidia a lot of people whenever there's a boom in something or just a well performing stock love to say well if you miss the you know the the big one go with the next in line and I'm not sure that ever really works out to be honest but that's the line on AMD why are they not the obvious one to bet on if you don't have the stomach for NVIDIA well I mean they are and they aren't right so I I I understand the need for a second Source um and and they are the clear Second Source at least on gpus most of the um at least maybe the more credible Second Source may not even be AMD maybe maybe a player like broadcom exactly or some of the other like Asic Asic players who who are doing chip design for The hyperscalers Who doing their own chips that actually may be the more credible and realistic Second Source over time rather than a second GPU vendor your Nvidia price Target is 130 which isn't even the 52e high for broadcom you're at 1950 so how you know what would you describe the opportunities there is still massive as well I I think they're big for broad I actually really like broadcom so it has what I I call the second best AI story in the space and remember in semiconductors there's only really two companies that are seeing material upside from AI it's Nidia and broadcom that that's about it everybody else AMD and and quite a few others as good as they're doing their core businesses have been weak enough where the AI has not has not been been helpful um with broadcom their Core Business is also quite weak they play in some of those Legacy networking areas but the AI business has been strong enough to completely bridge over it so they they haven't had to take their numbers down they we see numbers going up um their current AI guidance for the year is actually very very conservative um they've also got software businesses and other things that I think can drive upside going forward and the stock is very cheap so brom's portfolio of data center chips is second only to Nvidia and there's this added benefit of diversification since holding Nvidia stock and broadcom stock means getting exposure to two different kinds of AI accelerators gpus and as6 broadcom helped design every generation of Google's tensor processing units or tpus which Google uses to train and run large AI models like Gemini that includes the sixth generation TPU that Google announced a few months ago at google.

io and the Next Generation 3 nanometer tpus that are currently in development for Google and for meta Platforms in fact estimates suggest that Google and meta could drive over $9 billion in AI chip revenues for broadcom this year alone that would be almost a 2. 5x increase from last year and about 50% more than AMD expects in AI chip revenues over that same time frame broadcom also designs high performance topof rack switches for AI data centers and the custom Jericho 3 AI A6 inside them can be stitched together to support massive GPU clusters but it doesn't stop there broadcom was actually the first company to launch a combo chip for mobile phones back in 2007 by combining Wi-Fi Bluetooth and FM radio components on one chip that went into the very first iPhones and in 2019 broadcom finished the industry's first end to-end 5G switching portfolio which ended up moving almost all radio and fixed line traffic onto ethernet that's why almost all internet traffic today over 60% of which is mobile Touches at least one broadcom chip broadcom is still the main supplier of Apple's 5G and Wi-Fi chips today and apple was still broadcom's largest customer last year representing about 20% of their total revenues in 2023 and instead of moving to their own in-house chips like they did with Intel's processors a few years ago Apple actually doubled down on their partnership with broadcom even the iPhone 177 which is set to release sometime in 2025 is expected to use broadcom's chips so most of broadcom's semiconductor Solutions are aimed at Enterprises with wired or Wireless ethernet-based infrastructures which is the current industry standard and hyperscalers like Amazon web services Microsoft Azure and Google Cloud all have their own lines of AI chips built for ethernet-based racks that's why Nvidia is coming out with their own line of spectrum X ethernet networking solutions to capture more market share for data center networking so should broadcom be worried about Nvidia well the ve Arya from Bank of America asked this exact question on their latest earnings call and broadcom CEO Hawk tan gave a really good answer in a nutshell broadcom doesn't even think about competing with Nvidia when it comes to accelerators that's where envidia is very good and broadcom knows where they stand with respect to that but when Google or Microsoft or Amazon wants a custom chip to handle specific AI workloads at a large enough scale broadcom can help design one for their stack but those as6 don't compete with nvidia's gpus if anything they compete with amds and Intel's CPUs now on networking maybe that's different broadcom is very deep in Ethernet and they've been doing ethernet networking for over 25 years so AI networking is a very natural extension for them but even on the networking side broadcom acknowledges that gpus are the AI compute engine of choice and data centers want a tightly integrated endtoend Computing platform so if anything broadcom's networking Solutions supplement and hopefully complement those gpus with customers who are building bigger and bigger GPU clusters so broadcom doesn't really compete with Nvidia as much as support and enable the same markets but from a very different angle even nvidia's Spectrum X ethernet Solutions might end up being used for very specific kinds of AI compute clusters while broadcom's networking solutions would connect everything else like they already do remember most internet traffic today still has nothing to do with generative AI the other 42% of broadcom's Revenue comes from their infrastructure software segment in 2018 they acquired CA Technologies which is an IT management software company that provides tools for automation project planning training and test data management and a lot more in 2019 broadcom acquired sanch a cyber security platform for desktops laptops and servers for businesses of all sizes seman tech software focuses on things like application controls firewalls and Expo prevention systems to protect endpoint devices from hackers viruses and malware and of course in November of 2023 broadcom acquired VMware for a whopping 69 billion VMware lets companies set up virtual machines to do things like create isolated environments to process sensitive data launch a backup machine when a main machine goes down or pull resources from multiple servers to run compute intensive workloads that need more than one computer the common theme around all of these software Acquisitions is that they help large scale data centers operate expand and secure their machines networks and the devices that connect to them VMware has around a 60% market share in the virtualization market and sanch has over a 75% share of the market for Windows anti malware applications today so these are both great software Acquisitions for broadcom which is is kind of funny because broadcom was actually acquired itself back in 2015 by a company called avago Technologies for $37 billion the largest merger between two semiconductor companies in history avago Technologies makes Wireless networking components and custom chips for everything from smartphones to Enterprise networking gear as well that's why broadcom Stock's ticker symbol is avgo speaking of which now that we understand the company at a high level what's take a look at their latest earnings results and current competitive advantages to see if broadcom stock is worth buying after this massive runup and their 10 for one stock split broadcom posted record revenues of 122. 5 billion for the quarter which is up a whopping 43% year-over-year and their gross profits look almost just as good coming in at $ 7.

83 billion a year-over-year increase of 28% that gives broadcom gross margins north of 61% largely due to their dominant position in data center networking and their smart software Acquisitions for example this was the first full quarter of contribution from VMware which more than doubled broadcom's overall infrastructure software revenues quarter over quarter even if you don't include VMware broadcom's revenues are still up 12% year-over-year but the real star of the show is broadcom's AI Revenue which is up an insane 280% year-over-year to 3 .