Broadcom: Turning the Mag 7 Into 8 Trillion-Dollar Tech Giants

Key Points

• Broadcom had a strong quarter driven by AI demand. Its stock price will trend higher in 2025.
• Cash flow and capital returns are solid and expected to grow in 2025. 
• Analysts are lifting their price targets and sustaining an upgrade cycle with no end in sight.  

Broadcom NASDAQ: AVGO is on the verge of turning the Magnificent Seven into Eight. The Mag Seven are the top U.S. stocks by market cap, all tech names, and the only United States stocks with trillion-dollar market caps. Broadcom was about 17% below that target going into the FQ1 2025 earnings report; coming out, the stock price surge went off the charts, rising nearly 17% to tickle the critical level and set a new all-time high. Because the results are driven by fundamental strengths, including high demand for AI-related products and AI's budding, multi-generational upgrade cycle drive, Broadcom stock will likely continue moving higher, enter the trillion-dollar market cap zone, and turn the Mag Seven into Eight. 

Broadcom: An Intelligent Play on Artificial Intelligence

Broadcom reported mixed results; however, the bar was set high, revenue growth accelerated, and it topped 50%, so the expected top-line figure is much stronger than it may appear. The company’s growth is driven by strength in both segments, led by a 196% increase in Infrastructure Software. Its software products are critical to building and scaling AI. They are used by the leading hyperscalers and the businesses that use them, including Apple NASDAQ: AAPL, Google NASDAQ: GOOGL, and Meta Platforms NASDAQ: META. Semiconductors, the largest business segment, grew by 12%. 

Margin is another area of strength. Broadcom sustained its margin and drove better-than-expected cash flow despite the impact of restructuring, allowing the board to increase the dividend significantly. Cash flow came in at $5.604 billion, up from the prior year, with $5.482 billion in free cash flow or about 39% of the revenue. The net result is adjusted earnings of $1.42, up 28% year over year and $0.03 better than MarketBeat’s reported consensus.

The company's guidance is also good. It issued strong guidance for Q1, forecasting 22% year-over-year growth in addition to the 34% posted last year and a wider margin. The EBITDA margin is expected to widen sequentially by 100 basis points and 600 compared to the previous year, driving leveraged cash flow and FCF gains. The guidance is also above the consensus forecasts, leading analysts to raise their results and stock price estimates. 

Analysts Lift Targets for AVGO Stock, Point to the $250 Level

The analysts' response to Broadcom’s results is solid, with more than one dozen tracked by MarketBeat raising their stock price target. All fresh targets are above $200, and most, about 60%, put the market in the $240 to $250 range. Takeaways from the chatter are that Broadcom increased confidence in the outlook for established business and impressed the market with long-term guidance for custom AI work. The company forecasted $90 billion in custom business by 2027, which is equal to 150% of the 2024 business, and it may be cautious in its estimates. With this in play and robust business, the analysts will likely continue to lift targets as 2025 progresses. 

Broadcom’s balance sheet and capital return will also lift the stock price over time. Despite acquisitions, the company sustains a fortress balance sheet and significantly increased shareholder equity in F2024. Highlights include assets that have more than doubled on acquired intangibles and goodwill relating to the VMWare acquisition, only partially offset by increased liability. Equity is up nearly 3x compared to the prior year, leaving its long-term debt leverage at roughly 1x and the business healthy. Regarding the capital return, the company increased its dividend by 11% for 2025, about 35% of the expected earnings, and will likely be increased by double digits again at the end of the year. 

Broadcom Stock Price Goes Off The Charts

Broadcom's stock price surged more than 15% on the news and analysts' response, rising to a new all-time high. The move put the market near the $212 level, where it may experience some volatility. At this level, the market is at an all-time high, and a significant gap has been created, which may lead to profit-taking. The market could pull back as deep as the previous day's close in this scenario before moving up to set new highs.