Broadcom: Buy Now To Ride The Shift From Compute To Networking
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Hunting Alpha7.26K FollowersFollow5ShareSavePlay(11min)CommentsSummaryAs the constraint in AI data centers shifts from compute to networking capacity and performance, Broadcom finds itself ideally positioned to capitalize on AI networking constraints.The company is winning multi-billion-dollar deals worth of new business from big AI industry names. I expect growth acceleration in organic revenues to ~35% YoY in FY26.Customer concentration risk remains a key monitorable, as 40-50% of revenues come from a few hyperscalers.AVGO stock is richly valued at a 62.9% valuation premium to semiconductor peers, but it is encouraging to see this backed by rising earnings expectations.A bullish technical chart on AVGO vs. SPX500 supports the case for continued upside and outperformance. EMS-FORSTER-PRODUCTIONS/DigitalVision via Getty Images Performance Assessment Broadcom Inc. (AVGO) has outperformed the overall market since my last update on the stock: Thesis I am now adding to my buys on AVGO stock. Here's the view: Broadcom is well-positioned to This article was written byHunting Alpha7.26K FollowersFollowI aim to provide alpha-generating investment ideas. I am an independent investor managing my family's portfolio, primarily via a Self Managed Super Fund. You can expect my articles to deliver a clearly structured, evidence-based thesis. But first and foremost, I encourage readers to judge me on my performance.I have a generalist approach as I explore, analyze and invest in any sector so long there is perceived alpha potential vs the S&P500. The typical holding period ranges between a few quarters to multiple years.A bit about how I approach research and coverage of a stock:I build and maintain comprehensive spreadsheets showing historical data on the financials, key metric disclosures, data on the guidance and surprise trends vs consensus estimates, time-series values of the valuations vs peers, data on key coincident or leading indicators of performance and other monitorables. In addition to the company's filings, I also keep tabs on relevant industry news and reports plus other people's coverage of the stock. In some cases, such as during times of a CEO change, I will do a deep dive on a key leader's background and his/her past performance record.I very rarely build DCFs and project financials many years out into the future as I don't think it adds much value. Instead, I find it more useful to assess how a company has delivered and the broad outlook on the 5 key drivers of a DCF valuation: revenues, costs and margins, cash flow conversion, capex and investments and the interest rates (which affect the discount rate/opportunity cost of capital).Associated with VishValue ResearchAnalyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in AVGO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does AVGO's OpenAI deal impact forward revenue growth?The $10 billion OpenAI deal is expected to drive sharp revenue acceleration, with organic revenues projected to grow ~35% YoY in FY26.What are the key risks to AVGO's margin profile?Customer concentration among hyperscalers exposes AVGO to potential revenue losses or gross margin erosion if clients switch away from AVGO or gain negotiating power.Is AVGO's valuation premium justified relative to sector peers?While AVGO trades at a 62.9% premium to peers, rising earnings expectations and robust AI-driven demand help justify the elevated multiple.Recommended For You