Broadcom's Mixed Q4 Results: AI Growth Shines Amid Revenue Concerns

Broadcom: A Falling Knife That's Worth Catching (NASDAQ:AVGO)

Looking for a helping hand in the market? Members of Ultimate Growth Investing get exclusive ideas and guidance to navigate any climate. Learn More " Broadcom Inc. (NASDAQ:AVGO) is one of the most important semiconductor companies beyond the semi value chain. Its exposure to the leading hyperscalers and cloud data center customers underscores its vital position in the AI upcycle. In addition, it has substantial non-AI revenue that's inherently more cyclical, affected by broad macroeconomic cycles. The recent integration with VMware has also enhanced its enterprise software and cybersecurity capabilities, bolstering its infrastructure software revenue segment. Therefore, there's little doubt that Broadcom is widely considered a semiconductor bellwether. Understanding AVGO's primary growth drivers is crucial to assessing whether the AI-led semiconductor upcycle can continue its stellar performance. In my previous bullish article in July 2024, I highlighted that I was too cautious about the company's leading position in the AI growth inflection thesis. As a result, I've understated its custom AI chips opportunity while overstating its cyclical non-AI revenue prospects. While AVGO has underperformed the S&P 500 (SP500) since my previous article, its bullish proposition has been assessed to remain intact. Therefore, the recent weakness in the stock has opened up another solid opportunity for investors to add more exposure. In the third fiscal quarter earnings release last week, the market was palpably disappointed with its relatively tepid guidance. As a result, it sent AVGO into a tailspin, as investors likely took profit to protect their gains. Notwithstanding the near-term caution, I've not assessed a structural decline in the AI infrastructure thesis. Accordingly, the AI arms race involving big tech and the leading hyperscalers is expected to intensify, bolstering growth prospects for semiconductor leaders like Broadcom. As a reminder, management indicated Broadcom attained AI revenue of $3.1B in FQ3 and guided to AI revenue of $3.5B for FQ4. However, the full-year AI revenue outlook of $12B (up from $11B previously) disappointed the market, potentially raising risks of a growth normalization phase from the next fiscal year. Given Broadcom's less enthusiastic guidance upgrade, the market is justified in reassessing its optimism on the AI growth momentum. It also follows Nvidia's (NVDA) recent earnings, suggesting a lack of significant follow-through on their guidance upgrades from the leading semi-companies. Despite that, the AI investment theme is alive and well. There's a need to continue upgrading the AI infrastructure to ensure that leading tech companies stay ahead of the curve. However, I concur that software companies must demonstrate that they can monetize Generative AI effectively, lending credence to the AI investment thesis. Microsoft (MSFT) has reportedly faced challenges in improving the adoption of its AI co-pilot, potentially dampening investor optimism about its software peers. Hence, I assess that the market will likely remain cautious over a more aggressive valuation re-rating on AVGO until they garner more visibility from the leading software companies. Notwithstanding the caution over AI growth opportunities, management anticipates an inflection on its non-AI revenue. Therefore, investors should continue to assess whether its non-AI bookings could translate to more revenue visibility over the next few quarters. Broadcom highlighted that non-AI bookings increased by 20% YoY. Therefore, it corroborates management's confidence that its cyclical revenue segments have "passed the bottom." That should afford investors more confidence as the company navigates the market's caution on its AI revenue streams in networking and compute. I assess that the competitive advantages in Broadcom's networking solutions should continue to underpin its ability to provide an integrated portfolio encompassing critical solutions across the AI value chain. AVGO is still priced for growth ("D-" valuation grade), even though it hasn't improved markedly from the optimism observed three months ago ("F" valuation grade). However, its best-in-class profitability ("A+" profitability grade) underpins its robust buying momentum, suggesting a buy-the-dip opportunity remains intact. AVGO's forward adjusted PEG ratio of 1.46 is nearly 20% below its sector median, underscoring a relative undervaluation thesis. Wall Street estimates have also been lifted, potentially bolstering the buying sentiment on the stock. Investors are palpably concerned about whether the AI upcycle could be nearing its peak, potentially leading to a growth normalization phase for Broadcom. Investors must scrutinize the investment and monetization drivers closely, as they could determine the revenue trajectory of AVGO and its leading peers. In addition, the stock is still priced for growth. While the company is confident its non-AI revenue segments have seen their worst, the recovery remains uncertain. If macroeconomic headwinds intensify, they could lengthen the recovery of the company's more cyclical solutions, potentially impacting their earnings recovery. Rating: Maintain Buy. Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified. Have constructive commentary to improve our thesis? Spotted a critical gap in our view? Saw something important that we didn't? Agree or disagree? Comment below with the aim of helping everyone in the community to learn better!

Broadcom: Solid Earnings - Buy The Dip (NASDAQ:AVGO)

This idea was discussed in more depth with members of my private investing community, The Financial Prophet. Learn More " I wrote about Broadcom Inc. (NASDAQ:AVGO) stock before earnings. Broadcom reported better-than-expected earnings results but failed to deliver the desired guidance. This "sell-the-news" dynamic became a familiar theme this past earnings season. NVIDIA Corporation (NVDA) and other market-leading stocks have declined post-earnings, many after providing better than anticipated earnings and solid guidance, like Broadcom. While we may see a mild, transitory slowdown in the AI enterprise market, it is likely not the time to give up on Broadcom's stock. Instead, the recent slowdown phase provides intermediate and long-term buying opportunities for Broadcom investors looking to capitalize on the growth likely to materialize from the enterprise AI space in the coming years. Also, Broadcom's stock is relatively inexpensive right now. It trades at about 22 times forward EPS estimates, which appears cheap for a company in its advantageous market-leading position. Moreover, Broadcom could experience higher than anticipated EPS growth, and there is a high probability it can outperform future estimates despite the temporary growth slowdown phase. Due to the constructive setup and bullish dynamic, Broadcom's stock could appreciate considerably in future years. Broadcom's stock hit a near-term blow-off top several months ago. Since then, Broadcom has been in pullback/consolidation mode. Broadcom's correction has been about 30% from peak to trough, and the stock is still about 25% below its all-time high level. Also, we've seen two successful tests of the 200-day MA support, and technical indicators like the full stochastic, RSI, CCI, and others suggest that momentum could improve in Broadcom's stock soon. Technically, nothing prevents it from moving to new ATHs in the next up-wave, which could begin at any time now. Broadcom reported an EPS of $1.24 and revenues of $13.07B in its most recent quarterly announcement. The EPS figure was a three-cent beat, and sales beat by $110M. One issue here is that the market has become so optimistic regarding AI that it wants stronger beats, and perhaps more importantly, it wants to see more robust guidance. For Q4 (fiscal 2024), Broadcom provided $14B in sales guidance, slightly lower than the $14.04B the market expected. Nonetheless, there is a very small shortfall here, and Broadcom is likely sandbagging its guidance and should easily beat $14B when it reports fiscal Q4 later this year. Also, Broadcom's growth could increase, and it has a considerably long growth runway, so Broadcom's stock could move much higher. Broadcom has missed EPS and sales estimates only once in its last 20 quarters (5 years). Broadcom's TTM consensus EPS estimate was $4.43, but Broadcom reported $4.55, a modest 3% outperformance rate. Therefore, we could see a similar 3-5% outperformance rate in the future. Also, Broadcom will likely experience a big earnings jump soon. The fiscal 2025 consensus estimate is for $6.17 in EPS. Applying a modest 3-5% outperformance rate enables a likely EPS of about $6.36-$6.48 ($6.42 average estimate) for next year. Currently, Broadcom trades around $140, illustrating a potential sub-22 forward P/E ratio for its stock. This P/E ratio is relatively cheap, given Broadcom's excellent sales and earnings growth potential and long growth runway. Therefore, we could see substantial earnings growth and multiple expansion in future years. Given that Broadcom's P/E ratio could expand to the 27-30 range, its stock could increase to approximately $173 - $193 over the next year (roughly 23% - 38% upside potential). Despite the recent volatility, Wall Street remains bullish on Broadcom. Also, I must draw your attention to the fact that while Broadcom's stock has corrected by 25% to 30%, its price targets have not come down, illustrating the high level of conviction behind its stock and its significant earnings power. Remarkably, the average price target for Broadcom is around $193, nearly 40% above its current stock price. Also, the lowest price targets are around $155, about 11% higher than Broadcom's current depressed levels. Finally, the higher-end, bullish case scenario price targets go up to $240, representing the potential for about a 70% gain over the next one year. Broadcom's $14B guidance vs. the $14.04 estimate does not impact my intermediate and long-term projections for Broadcom. Despite the lackluster growth environment, growth should improve in future quarters, likely improving profitability and driving higher valuations. A 20-22 forward P/E ratio may be too low for Broadcom as it has substantial EPS and sales growth potential and momentum, and its multiple could expand to 25-30 or higher in the coming years. Therefore, Broadcom's stock has a high probability of appreciation, and it may be one of the top long-term buy-and-hold candidates right now. Broadcom faces risks due to competition looking to capitalize on the lucrative AI enterprise space. There is also the risk of a slower-than-anticipated economy hurting demand. The higher interest rate for a longer dynamic may also be detrimental for Broadcom as companies may be nervous to invest or wait for more accessible monetary periods. Expectations remain incredibly high, and the company must perform optimally to continue beating estimates. The slightest disappointments could lead to considerable downsides to its stock. Investors should examine these and other risks before investing in Broadcom.

Broadcom: Strong AI Growth Overshadowed By Disappointing 4Q Revenue Outlook (NASDAQ:AVGO)

I maintain a hold rating as the stock is still trading at a premium valuation of 13.5x EV/sales forward. Broadcom's (NASDAQ:AVGO) stock dropped 10% following its 3Q FY2024 earnings report. Despite strong growth in the Infrastructure Software segment, much of it was driven by VMware, while AVGO's core software business saw a sharp deceleration, growing only 3.3% compared to 34% YoY in the previous quarter. However, AI-related revenue continued its robust growth, implying at least a 174% YoY increase in 3Q, and the company raised its AI revenue outlook for 4Q. Meanwhile, the Semiconductor Solutions segment, which accounts for 55% of total revenue, posted only mid-single-digit growth. In my last coverage, I issued a hold rating on the stock due to concerns about potential growth deterioration excluding VMware's contribution. Since then, the stock has underperformed iShares Semiconductor ETF (NASDAQ:SOXX) by 1%. While costs related to the VMware acquisition led to a negative EPS on a GAAP basis in 3Q, the company's margins are showing signs of gradual recovery. Given the disappointing 4Q revenue guidance, I'm reiterating my hold rating, as the stock is still trading at 13.5x EV/Sales fwd. AVGO's top-line growth is largely driven by VMware. The company topped both revenue and non-GAAP EPS estimates for 3Q FY2024, with the Infrastructure Software segment growing 200% YoY, up from 175% in the previous quarter. However, this YoY growth isn't directly comparable, as VMware's revenue was not included in last year's results. During the 3Q FY2024 earnings call, the management highlighted that VMware generated $3.8 billion in revenue, reflecting a QoQ growth acceleration to 40.7%, compared to 28.6% in 2Q due to strong bookings. Particularly, VMware Cloud Foundation (VCF) showed strong growth, with its annualized booking value reaching $2.5 billion in 3Q, representing a 32% QoQ increase. However, excluding VMware, AVGO's core software business experienced a significant QoQ slowdown. As previously mentioned, on a GAAP basis, EPS fell to -$0.40 per share, the first negative result since FY2016. Management attributed this decline to higher taxes, restructuring, and integration costs related to the VMware acquisition. While these costs are non-recurring, investors should carefully consider both the costs and benefits of VMware's contribution. Despite overall revenue growing 47.3% YoY in 3Q FY2024, excluding VMware, AVGO's growth was just 4% YoY, marking a growth slowdown from the 4.9% growth in 3Q FY2023. Although VMware's business model transformation has been successful, AVGO's triple-digit overall growth momentum does not reflect its organic performance. Management acknowledged concerns about the slowdown in AVGO's core business and indicated that non-VMware software revenue has now stabilized, expecting mid-single-digit growth moving forward. The management also mentioned that AI revenue in 4Q FY2024 is expected to grow 10% QoQ to $3.5 billion. This implied that 3Q FY2024 AI revenue to be $3.15 billion, growing roughly 178.8% YoY, which was in-line with the management's expectations. The total AI revenue in FY2024 will be around $12 billion, which is higher than the company's previous guidance of $11billion. The CEO Hock Tan believes that the AI revenue growth trend will continue to be strong in FY2025, supported by its existing backlogs. Despite the positive AI outlook, AVGO's 4Q revenue guidance missed market expectations. The implied 4Q revenue of $14 billion suggests continued growth acceleration to 51% YoY, driven primarily by VMware and AI-related revenue. Management expects VMware to generate roughly $4 billion in revenue for 4Q FY2024, representing mid-single-digit QoQ growth. They also believe the strong bookings trend will persist into FY2025. Management also noted that non-AI markets have likely bottomed and expect a gradual recovery in the coming quarters, with Semiconductor Solutions revenue forecasted to grow 9% YoY in 4Q FY2024, up from 4.8% in 3Q. Due to the VMware integration, the company has faced margin pressure, with its adjusted EBITDA margin dropping significantly in 1H FY2024. However, the company is guiding for a 64% margin in 4Q FY2024, indicating that a continued recovery remains on track, as acquisition-related cost reductions have been better than expected. The company reduced VMware spendings to $1.3 billion in 3Q, down from $1.6 billion in the previous quarter. Lastly, VMware is expected to generate $8.5 billion in adjusted EBITDA within three years of the acquisition, and according to management's comments, the company may achieve this target ahead of schedule by FY2025. Despite a significant reacceleration in revenue growth over the past four quarters, AVGO's stock remains expensive, trading at 14.9x EV/Sales TTM. While its strong growth justifies a higher valuation, I believe the stock is fairly valued given its 51% YoY revenue growth guidance for 4Q. Growth is likely to normalize in FY2025, with the EV/Sales fwd sitting at 13.5x, which is 52% above its 5-year average, according to Seeking Alpha. Meanwhile, AVGO's non-GAAP P/E fwd is 28.3x, roughly in line with the Nasdaq 100's P/E. With the equity market beginning to price in a potential economic slowdown, as indicated by a recent broad-based index pullback, it's prudent to be cautious with this high-multiple stock. However, I believe AVGO's risk-reward profile will become more attractive if its EV/Sales fwd approaching to 10x. In conclusion, AVGO 3Q FY2024 results showed strong growth, primarily driven by VMware, while its core Broadcom Software business experienced significant deceleration and Semiconductor Solutions posted only mid-single-digit growth. Management believes the non-AI business has bottomed out, and indicates AI-related revenue continues to expand, with a positive outlook for 4Q and FY2025. However, the stock remains expensive at 13.5x EV/Sales fwd, justifying its current growth momentum. Given the disappointing 4Q revenue guidance, I remain cautious. However, I believe a more attractive entry point may arise around 10x EV/Sales fwd, so I'm maintaining a hold rating on the stock.

Broadcom Stock: A Golden Buying Opportunity (Rating Upgrade) (NASDAQ:AVGO)

Risks include a potential slowdown in AI-related revenue, which could negatively impact Broadcom's gross margins and investor sentiment. Shares of Broadcom (NASDAQ:AVGO) crashed 10% on Friday after the hardware maker reported better than expected earnings for its third fiscal quarter. Despite a 47% year-over-year increase in revenue in the last quarter, which was driven by a continual boom in the artificial intelligence market, the earnings report fell into a week of weak macro data. Chip stocks had an especially bad week last week as investors panicked over a poor reading of the labor market data. In my opinion, Broadcom is in a buy the dip kind of situation as the company maintained high gross margins and generated a ton of free cash flow. Shares are also much more affordable following last week's drop. I rated shares of Broadcom a sell in my work from June -- Beware The FOMO Rally -- as the hardware company saw a significant acceleration in its top line due to its AI-related growth, which caused a euphoric market reaction. While the AI boom does not seem to be ending -- Broadcom guided for $12B in AI-related revenue in the current fiscal year -- the market has been more cautious with regard to companies that benefit from it. In my opinion, Friday's 10% drop is a buying opportunity: the company's solid top line guidance and robust free cash flow, paired with a significant valuation drawdown since my last coverage in June, make shares more attractive for long-term growth investors. Broadcom edged out consensus estimates on both the top and the bottom line last week: The company had adjusted earnings of $1.24/share, which beat estimates by $0.03/share. The top line came in at $13.07B, beating the consensus estimate by $108M. Broadcom generated $13.1B in net revenues in what is the company's third fiscal quarter, showing 47% year-over-year growth. Broadcom benefits from growing demand for AI infrastructure, which has led to a serious upswing in revenues and gross margins in the last year. Gross margins especially are a key performance metric for hardware makers and Broadcom is seeing a significant upsurge here: the firm benefited from strong demand for AI parts and other custom products in the last quarter, leading to a gross margin of $8.4B, showing 36% year-over-year growth. The hardware maker generated a gross margin of 64% in the last quarter, compared to 62% in the previous quarter. Another strength, besides high gross margins, is that Broadcom is highly free cash flow-profitable which, in my opinion, takes a lot of risk out of the equation. Broadcom generated free cash flow of $4.8B, showing 4% year-over-year growth, resulting in a healthy free cash flow margin of 37% (+1 PP Q/Q). Broadcom's strong free cash flow limits investments risks with regard to Broadcom, in my opinion, and could also support the company's share price in the long run, especially if the company were to return a higher free cash flow percentage to shareholders (either through a higher dividend or a new stock buyback plan). (Source: Author) Broadcom projects a top line of $14.0B for the fourth fiscal quarter, which came in slightly below consensus expectations of $14.1B. The company said that it still benefits from growing spending on AI parts and other custom item it sells, leading to an AI-related revenue forecast of $12.0B in the current fiscal year (+$1.0B compared to previous forecast). Broadcom's valuation is no longer as stretched as it was several months ago, when optimism about AI hardware makers including NVIDIA (NVDA) or Super Micro Computer (SMCI) peaked. Last week was an especially bad week for Broadcom to release its earnings as the market reeled from a bad jobs report for August and jobs numbers for July were revised downward. Broadcom's 10% slump on Friday, however, has made the stock a lot more affordable for investors: since my last recommendation, Broadcom's share price has fallen ~20%, and I believe that investors are now dealing with an attractive dip buying opportunity. Shares of Broadcom are valued at a forward price-to-earnings ratio of 22.2X, which is about 7% above last year's P/E average, but significantly down from the near-30X forward P/E ratio we have seen earlier this year. Compared to other fast-growing chip companies, like NVIDIA and AMD (AMD), Broadcom is now trading at a much more attractive valuation ratio. I believe Broadcom could be valued at a 25X P/E ratio given its strong underlying free cash flow profitability and its ability to expand its gross margins quarter-over-quarter. A 25X fair value P/E ratio implies an intrinsic value, based off of a consensus EPS expectation of $6.12/share, of ~$153 per-share. With shares trading below my fair value estimate and the company issuing solid revenue guidance for the next fiscal quarter, I believe a rating upgrade to buy makes sense. A slowdown in AI-related revenue growth could potentially break the spirit of investors that plan on a multi-year AI spending spree. Broadcom is growing quickly, and its gross margins are expanding, which is good news. It's free cash flow is strong. However, slowing AI spending on hardware and software products could potentially have a negative effect on Broadcom's gross margin trajectory. What would change my mind about Broadcom is if the company were to see a drop-off in its free cash flow margins or fail to maintain its high gross margins. Broadcom reported solid results for its third fiscal quarter last week, but the market clearly didn't appreciate the company's earnings scorecard as much as it maybe should have. The reason for this was an accelerating sell-off in the stock market last week, following a weaker than expected reading of the jobs report for the month of August, which created pressure for sectors that have done well lately, AI stocks specifically. However, Broadcom's outlook for the next quarter is solid, and the company generates a ton of free cash flow. The valuation is now much more appealing than it was in June, resulting in a rating upgrade to buy.

Broadcom's Latest Results Confirm Its Noteworthy Role In The New AI Era - Broadcom (NASDAQ:AVGO)

Broadcom Inc AVGO topped estimates with infrastructure solutions revenue but came short on the semiconductor solutions front. With its latest results, the supplier of Apple Inc AAPL showed positive revenue growth and perhaps more importantly, proved that the transformation of the acquired VMware around private cloud is well grounded. Fiscal Third Quarter Highlights For the quarter ended on August 4th, Broadcom reported revenue grew 47% YoY to $13.07 billion, surpassing FactSet's and LSEG's consensus estimate of $12.98 billion. When excluding the contributions from VMware deal that closed in November, revenue only grew 4%. Semiconductor solutions brought in $7.27 billion with revenue growing 5% YoY, but still short of FactSet's estimate of $7.42 billion. Strengthened by the VMware deal, infrastructure-solutions reported revenue grew as much as 200%, topping FactSet's consensus estimate of $5.52 billion. But, Broadcom ended up with a net loss of $1.88 billion, or 40 cents a share. Adjusted earnings amounted to $1.24, surpassing LSEG's consensus estimate of $1.20. Guidance in line with expectations. For the current quarter, Broadcom guided for revenue of $14 billion. Fueled by ethernet networking and custom accelerators for AI data centers, Broadcom lifted its prior forecast as it now expects $12 billion in full-year AI revenue from sold AI parts and custom chips. It previously expected $11 billion. For the full year, Broadcom expects adjusted EBITDA to be 64% of revenue. Broadcom's contribution is not going unnoticed. Over the past year, Broadcom stock rose as much as 75%, underlying the fact that the market is seeing the company as a noteworthy contributor to the AI infrastructure in the making. Some example of Broadcom's work is on the Google-made TPU chip, the custom chip that even Apple used in its AI training work. With this decision, Apple also showed its focus to reduce reliance on the dominating chip player, Nvidia, as when it comes to AI training, Nivida makes the rules with its graphics processing units. Unsurprisingly, Nvidia put a hefty price tag on these highly wanted chips that Microsoft Corporation MSFT, Open AI and Anthropic use for their current models, while Google is among those using them to make its AI offerings and build its system. Therefore, the Apple supplier seems to have a less-obvious but still noteworthy role in the AI dynamics and new era that is in the making and Broadcom is clearly somewhat receiving the acknowledgement for its contribution. DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice. This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy. Market News and Data brought to you by Benzinga APIs

Broadcom Investors Acknowledge It's Overvalued (NASDAQ:AVGO)

The Retirement Forum members get exclusive access to our real-world portfolio. See all our investments here " Broadcom (NASDAQ:AVGO) dropped double-digits on Friday, and is now more than 25% below its all-time highs. The company announced earnings, which showed strong YoY growth, primarily driven by the acquisition of VMWare. As we'll see throughout this article, the company's growth is slowing down, which will result in its share price declining. Broadcom is a merger of many different major companies, as the company and its CEO Hock Tan have made numerous acquisitions. The company has almost $36 billion in net revenue and has major R&D spending at $5.3 billion annually. It has numerous divisions that operate in vastly different segments, and that has expanded as the company's acquisitions have led to 26 different divisions with ~21k patents. Still, it's worth noting the company has an acquisition-based portfolio. The company has been built up through numerous acquisitions. In the midst of all of this was a failed attempted acquisition of Qualcomm, blocked by the U.S. government on security concerns. The company moved its headquarters from Singapore to the U.S. after this. The latest is the almost $70 billion acquisition of VMWare. This integrated company with more than $100 billion in acquisitions is now worth >$600 billion. The takeaway here is one of our fundamental concerns with the company. The company is growing larger, and it's more difficult to find acquisitions that can move the needle without facing regulatory concerns. A central part of the company's growth has been acquiring and integrating existing businesses and driving efficiency in those businesses. Slowing down or turning off that lever will hurt the ability for future returns. The company has several segments, with its two core offerings - infrastructure software and semiconductor solutions. These two segments are split across numerous subsegments, some of which are Broadcom's core businesses, and many others which are newly acquired businesses. VMware is now the largest business in infrastructure software, with Symantec and CA Technologies making up the vast majority of the rest of the company. An example here is the company's Broadband business. The company offers solutions at nearly every level and in many areas is a leader here. It works primarily business to business. For example, in the company's wireless segment, it signed a multi-billion dollar deal with Apple (AAPL), showing its ability to outperform what other tech companies can do. However, having such large customers is also a risk. Apple makes up 20% of Broadcom's revenue, and the rumor is that Apple plans to replace Broadcom with its own Wi-Fi / Bluetooth chips in the next few years to capture the cost savings. That is a major risk for Broadcom and its ability to continue performing, given that once the business is lost, it has no marketing or direct to customer businesses that can easily make it up. Broadcom has managed to grow its revenue in recent quarters, but it's been mostly lifted by the acquisition of VMWare. The company's revenue grew 4% YoY not counting the impact of VMware, although true revenue growth was 47% to $13 billion. This means a more normal rate for revenue growth is in the mid-single-digits not counting acquisitions, slightly above inflation but not by much. For a company with a FCF yield of ~3%, that's slow growth. The company continues to grow its dividend rapidly, but with rapid share price growth, that dividend is still ~1.5%. That's a dividend that's below the S&P 500. To us, one of Hock Tan's comments indicates how the company is potentially hyped up and overvalued as part of the artificial intelligence hype. Hock Tan states, "The integration of VMware is driving adjusted EBITDA margin to 64%". So here's a $70 billion acquisition that's increasing both margins and revenue by 50%, but the underlying company is worth almost $640 billion. That indicates how much the company could be worth off of its earnings and margins alone. Nailing down Broadcom's competitors is difficult because of how varied its business is today, VMware has massively different competitors from its Wi-Fi chip business. Qualcomm (QCOM), which has a similar business with cellular chips, has a P/E of ~20 or <70% of it. Another metric is the S&P 500 which has a P/E similar to Broadcom but with an 11% forecast EPS growth in 2024. Removing the impact of VMware on the company's results, Broadcom is well below that, indicating that it's undervalued versus a simple and much lower risk S&P 500 ETF investment. That shows how Broadcom is overvalued. The largest risk to our thesis is that Broadcom is a core company to its customers the same way that TSMC is. It might not be a household name in terms of selling to customers, but it's a core business that has an efficient business with long-term potential. That could affect its ability to drive long-term shareholder returns. Broadcom has achieved massive growth through acquisitions, the artificial intelligence revolution, and the company's strong ability to provide its customers with cutting-edge designed chips. However, the company now trades at a lofty valuation and growth is slowing down substantially, with new acquisitions becoming much harder to find. The company, at the same time, has the risk that its largest customers are looking to cut it out to save money. Given the company's focus on acquisitions, and the lack of deals there, that could hurt its ability to continue growing. That was clear with the company's recent earnings, and we expect it to struggle to generate future returns.