1-share stock split will join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta in the trillion-dollar club
The American economy has a stellar track record of producing the world's most valuable companies. US Steel It became the first billion-dollar company in 1901. General Motors It then leveraged the automotive revolution to become the first $10 billion company in 1955. In 2018, Apple became the first to surpass the trillion-dollar milestone thanks to the success of its iPhone.
Apple remains the world's largest company with a market capitalization of $3.3 trillion, but it has since been joined in the trillion-dollar club by tech giants. Nvidia, Microsoft, Amazon, Target platformsand Alphabet.
Broadcom (NASDAQ:AVGO) It's possible that you might join them. It's currently valued at $761 billion, so its stock only needs to gain 31.4% from now to earn your membership. Here's why I think it will happen.
Broadcom shares have soared recently, prompting a split
Broadcom was originally a semiconductor and electronics company, but since merging with Avago Technologies in 2016, it has been on an acquisition spree. It spent a total of nearly $100 billion on purchasing semiconductor equipment company CA Technologies in 2018, cybersecurity giant Symantec in 2019 and cloud software developer VMware in 2023.
Acquisitions have propelled Broadcom shares to a 465% gain over the past five years, and earlier this year they topped $1,800, making them somewhat inaccessible to investors with small portfolios. As a result, Broadcom's management team decided to execute a 10-for-1 deal. stock splitwhich multiplied the number of shares outstanding by ten and proportionally reduced the price per share.
The split took effect on July 12, so investors can now buy a Broadcom share for just $162 at the time of writing. This means an opportunity because the company’s growing presence in artificial intelligence (AI) could further fuel the upside from here.
A multifaceted artificial intelligence company
Broadcom has placed a heavy emphasis on AI across its organization over the past year to capture what could be one of the most valuable technological revolutions in history.
In the semiconductor sector, Broadcom makes data center accelerators, which are chips specifically designed for AI development. It also supplies networking equipment for data centers, including Ethernet switches that regulate the speed at which data travels from one point to another. High-quality switches are critical for data center performance. AI Infrastructurebecause data must flow quickly through tens of thousands of graphics processors (GPUs) and accelerators.
During the recent third quarter of fiscal year 2024 (ending August 4), Broadcom said its custom AI accelerator segment grew three-and-a-half times compared to the same period last year thanks to rising demand from hyperscalers (which typically include Microsoft, Amazon, and Alphabet). The company also said its Tomahawk 5 and Jericho3-AI switches generated four times sales growth compared to the same period last year.
Outside of the semiconductor business, Symantec is incorporating artificial intelligence into its cybersecurity products. For example, earlier this year it launched SymantecAI, a chatbot capable of answering users’ queries about protecting their endpoints.
Then there’s VMware, which acts as the software layer of the data center to help organizations optimize their infrastructure. They can use VMware to create virtual machines, meaning multiple employees can connect to the same server to utilize its full capacity. That ensures that computing capacity isn’t wasted, which is critical right now due to the shortage of high-powered GPUs and data center hardware.
Broadcom expects to see $51.5 billion in total revenue for the full fiscal year 2024, which ends at the end of October. The company’s initial guidance was that $11 billion of that would be attributable to AI in its business, but it has just raised that estimate to $12 billion, highlighting the significant momentum in this emerging space.
Broadcom's (mathematical) path to the trillion-dollar club
As I mentioned at the beginning, Broadcom has a market cap of $761 billion right now, so its stock only needs to gain 31.4% from here to put the company in the trillion-dollar club.
The company is not consistently profitable under generally accepted accounting principles (GAAP), so it cannot be valued using the traditional price-to-earnings (P/E) ratio. However, we can value it using the price-to-sales (P/S) ratio, which divides its market capitalization by its annual revenue.
Broadcom is currently trading at a price-to-sales ratio of 16. If that number holds steady, the company simply needs to grow its annual revenue by 31.4% to justify its entry into the $1 trillion club. Wall Street expects Broadcom’s revenue to grow 17.2% in fiscal 2025, which won’t be enough, but it could hit that number in fiscal 2026 if it can grow that much again.
There is one caveat: While Broadcom's price-to-sales ratio has come down from its peak of around 19, it is still very expensive compared to its average of 8.7 over the past five years:
It's clear why investors are willing to pay a premium for the stock right now: Broadcom's AI semiconductor products are generating explosive growth, and its acquisitions are adding a tremendous amount of value. However, there's no guarantee that investors will be receptive to such a high price-to-sales ratio over the long term, and a decline to its five-year average could add years Broadcom's quest to join the trillion-dollar club.
So while Broadcom will be a spectacular stock to own during the AI revolution, investors should keep a very long-term perspective (perhaps a decade or more) if they buy it today. That will give the company plenty of time to grow to its current valuation.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Antonio DiPizio The Motley Fool has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: January 2026 $395 call options on Microsoft and January 2026 $405 call options on Microsoft. The Motley Fool has a Disclosure Policy.
1-share stock split will join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta in the trillion-dollar club Originally published by The Motley Fool
