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Stock splits are a common strategy companies employ to make their shares more accessible and liquid for investors and employees. By increasing the number of shares outstanding while proportionally reducing the share price, stock splits do not alter the company’s underlying value or fundamentals. However, stock splits are frequently associated with positive price movements, as they can generate increased investor interest, enhance marketability, and signal management’s confidence in the company’s growth prospects.
In 2024, thanks to the searing rally in artificial intelligence (AI) and semiconductor stocks, some high-profile companies have opted for stock splits, including Nvidia (NVDA), Broadcom (AVGO), and Lam Research (LRCX).
Now, reports have emerged that Broadcom may be looking for another split in 2025. Since its 10-for-1 split in July, AVGO stock has seen a return of 37.4%. So, should the chip giant’s stock be a part of investor portfolios before the expected split? The analyst community thinks so. Let’s have a closer look at why.
Broadcom Has Solid Fundamentals
One of the primary reasons for the 117% YTD rally in the Broadcom share price is the company’s ability to grow its revenue and earnings along with prudent balance sheet management.
The $1.1 trillion market capitalization company has clocked revenue and earnings compound annual growth rates (CAGRs) of 28.30% and 34.90%, respectively, while offering a current dividend yield of 1% which is above the sector median of 0.64%. Analysts expect this to continue, with projected revenue and earnings growth rates of 25.26% and 16.89%, compared to the sector medians of 5.56% and 8.19%.
The company continued its good run in the latest quarter as well. In the fourth quarter, Broadcom reported quarterly revenues of $14.1 billion which represented growth of 51% from the previous year. Earnings grew by 28.4% in the same period to $1.42 per share, coming in ahead of the consensus estimate of $1.39 per share. Notably, this marked the 16th consecutive quarter of earnings beats from the company.
Also during Q4, Broadcom reported net cash from operating activities of about $5.6 billion, compared to $4.8 billion in the year-ago period. Free cash flow increased as well, coming in at $5.48 billion, or 39% of revenue. Broadcom’s high free cash flow creates the basis for attractive capital returns.
The company exited the quarter with a cash balance of $9.3 billion which was much higher than its short-term debt levels of $1.3 billion.
Key Drivers Behind Broadcom’s Growth
Broadcom is demonstrating optimism toward the growth of the AI market, capitalizing on its expertise in application-specific integrated circuits (ASICs), AI acceleration chips, and traditional computing. The company’s achievements in networking further bolster its position as a key player in the evolving tech landscape.
CEO Hock Tan has highlighted Broadcom’s bullish outlook on the AI server chip market, emphasizing the significant opportunities expected over the next three years. Broadcom offers its customers two sets of AI infrastructure products: customized AI accelerators (XPUs) and various AI networking products. Its fourth-quarter results showed AI networking revenue growing 158% over the previous year's comparable quarter to around $3.42 billion.
Further, major hyperscalers are reportedly developing custom AI accelerators, and Broadcom is actively collaborating with three large customers (tipped to be ByteDance, OpenAI and Apple (AAPL)) to design AI chips. Tan projects that each of these customers will deploy 1 million AI chips in networked clusters by 2027. The potential market opportunity for Broadcom’s AI chips (referred to as XPUs) and AI networking components is estimated to be between $60 billion and $90 billion by that time.
On Dec. 5, Broadcom introduced its new 3.5D eXtreme Dimension System in Package (XDSiP) platform technology. This innovation allows custom-chip customers to achieve greater interconnect density and power efficiency than traditional designs, further strengthening Broadcom’s strategic positioning in the AI and networking markets.
Beyond AI, Broadcom is making notable progress in the burgeoning edge computing space. Following its VMware acquisition, the company unveiled three new tools in August 2024, including advanced network appliances that combine fixed wireless access and satellite connections, a new cybersecurity solution, and enhancements to its edge computing stack. These developments position Broadcom as a leader in addressing the growing demand for edge computing solutions, further diversifying its growth avenues across cutting-edge technologies.
What Do Analysts Think About AVGO Stock?
Analysts have attributed a rating of “Strong Buy” for the stock with a mean target price of $242.24, which implies upside potential of about 3% from current levels. Out of 33 analysts covering the stock, 30 have a “Strong Buy” rating and 3 have a “Hold” rating.
