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Broadcom (AVGO) is a semiconductor company that focuses on designing, developing, and supplying semiconductor and infrastructure software solutions. The company works in two main segments, Semiconductor Solutions and Infrastructure Software.
The global market is experiencing a turbulent period, with market crashes following a series of tariff announcements by the U.S. and Chinese governments, leading to trillions being erased almost overnight. In such conditions, one stock has shown resilience despite the initial knockdown. Broadcom’s stock dipped 15% between April 3 and April 4, but the stock has managed to rebound.
Over the past five days, Broadcom’s stock has surged more than 20%, although it remains 30% below its 52-week high.
Escalating Trade War
President Donald Trump declared a pause on reciprocal tariffs for most countries while increasing China’s effective tariff rate to 145%. In response Asian country has responded by hiking tariffs from 84% to 125% on U.S. goods.
The ongoing trade war between the U.S. and China will see significant implications not only for the market in general, but also for Broadcom in particular. At present, the company generates around 20% of its revenue from the Asian country, and the recent tariff hikes will make business difficult.
Recent events have led to increased costs for raw materials and logistics, while companies also face supply chain disruptions. This will lead to uneven market demand, which can also affect Broadcom’s profitability margins.
How Has Broadcom Reacted?
In response to the recent news and market crash, Broadcom has announced a $10 billion stock buyback program in a bid to restore investor confidence. The program will last until the end of the year and the number of shares repurchased will be decided after taking into consideration several factors such as market conditions and acquisition opportunities.
“In particular, we are uniquely positioned in mission-critical infrastructure software and enabling hyperscalers to drive innovation in generative AI into their expanding subscriber platforms,” said Broadcom CEO Hock Tan.
The market has accepted the move with open arms as Broadcom’s shares spiked 20% in a week.
Broadcom Surpasses Estimates
Broadcom announced its first-quarter results on March 6, when the semiconductor company posted net income of $5.5 billion, translated to $1.60 per adjusted share. The results surpassed Wall Street experts’ $1.50 per share estimates. Broadcom had total revenue of $14.92 billion for the quarter, a solid 24.7% rise as compared to the same quarter last year while analysts estimated $14.62 billion in revenue.
During the quarter, Broadcom had EBITDA of $10.08 billion, against analysts’ $9.66 billion with an EBITDA margin of 67.6%. The operating margin for the quarter came to 42%, a 17.4% rise from the same quarter last year.
The solid results were mainly driven by a rise in AI semiconductor solutions and infrastructure software. Broadcom’s AI solutions witnessed a growth of 77% year-over-year to $4.1 billion while its infrastructure software had 47% growth year-over-year to $6.7 billion.
For the ongoing second quarter, Broadcom’s board anticipates revenue of $14.9 billion, a 19% rise YOY. EBITDA is expected to be 66% of the projected revenue, or $9.83 billion, a 32% rise from Q1 2024.
Analyst Ratings on AVGO
Analysts have expressed their optimism surrounding Broadcom with a consensus “Strong Buy” rating and a mean price target of $245.68, reflecting upside potential of 36%.
The stock has been reviewed by 32 analysts in total and has received 29 “Strong Buy” rating and 3 “Hold” rating.
