Making The Case For Buying Broadcom Despite Its Higher Valuation

Summary:

  • Broadcom entered the hybrid cloud market with their VMware acquisition.
  • Second quarter FY 2024 results beat estimates, with revenue growth driven by Artificial Intelligence and VMware.
  • Although the stock sells at a premium valuation, there is still potential upside for long-term investors.

Broadcom headquarters in Silicon Valley

Sundry Photography

When I last discussed Broadcom Inc. (NASDAQ:AVGO), the company was coming off a quarter that displeased investors. The stock dropped 7% after releasing its first-quarter fiscal year (“FY”) earnings. I recommended buying the company because it is a huge potential beneficiary

The second quarter of FY 2024 reported Free Cash Flow TTM

(Trailing 12 months in millions)

$18,461
Terminal growth rate 3%
Discount Rate 10%
Years 1 – 10 growth rate 17.2%
Stock Price (June 13, 2024, closing price) $1,678.99
Terminal FCF value $102.881 billion
Discounted Terminal Value $495.475 billion
FCF margin 43.31%


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