Stock Split Watch: Is Broadcom Next?

Do you feel like you’ve been here before? Semiconductor and software giant Broadcom (NASDAQ:AFGO) A 10-for-1 stock split was implemented over the summer. However, here I am waving the flag for another potential stock split.

Maybe that’s a good thing. Broadcom shares are up nearly 30% since the recent split, though most of that has come in just the past few weeks.

Is it possible for us to separate again? After all, Stock splits It doesn’t make the stock fundamentally cheaper; They reduce the stock price by proportionally increasing the total number of shares.

So, should investors expect Broadcom to announce another stock split soon?

Most companies split their shares to make trading easier for small investors and employees. Investors can accumulate shares in a company without having deep pockets. At the same time, employees who receive large gains on stocks they received as compensation appreciate having more control over how much of their money they have at any one time.

There are no rules about why or how many times a company can split its stock. Broadcom wouldn’t be the first company to split its stock multiple times in a short period. Tesla The stock split was implemented in the years between August 2020 and 2022. Each share investors owned before those splits is equivalent to 15 shares today.

Admittedly, the Tesla splits were about two years apart, with the last Broadcom split just five months ago. I can’t say the odds are very high that Broadcom will split its stock in the next month or two. However, I think there is a strong chance of another split occurring in the next few years.

Broadcom recently announced exciting developments regarding artificial intelligence (AI) opportunities when it reported fourth-quarter earnings for fiscal 2024 (ending November 3). Broadcom is developing XPU (extreme processing unit) AI chips for three major customers, with two more in the works. Management will not drop names, but OpenAI and apple It is said that among them.

These XPU chips are said to be used for AI inference, helping AI models effectively apply their trained intelligence to new data that they have never seen before. You can think of AI training as Achieving intelligence And AI heuristics as Use it. It’s a different application than training AI models, which Nvidia has taken over with its accelerator chips. According to the company Latest group callBroadcom management believes AI-related revenue opportunities will reach $60 billion to $90 billion by 2027, and the company is poised to capture a significant portion of it.

This is important because Broadcom’s AI revenue for the full fiscal year 2024 was $12.2 billion, a fraction of that. Company-wide revenue was $51.5 billion, so AI is a growth catalyst that could lead to Broadcom doubling revenue over the next five to 10 years.

No one can know at what price Broadcom might consider splitting again, but it stands to reason that the higher the stock price, the greater the possibilities. Broadcom was trading at more than $1,000 per share when it split in July. The stock is nowhere near that today, but it crept to more than $250 at one point.

The stock trades at a price-to-earnings-growth (PEG) ratio of about 2, which is reasonable for a high-quality company like Broadcom. In other words, Broadcom’s price-to-earnings ratio is right for its expected earnings growth, which analysts estimate will average about 18% over the next three to five years. Given recent AI updates, growth estimates may increase in the coming months. High growth expectations and a reasonable valuation could mean higher stock prices.

If Broadcom gets a price of $350 to $400 per share, that could put a stock split on the table. The next split may be less dramatic than the last split, such as 4-for-1 or 2-for-1. Remember that stock splits should not be the reason you buy stock because they do not affect the financials of each share or increase the market value of the company.

The long-term upside of Broadcom’s AI makes it a compelling investment, so consider a potential stock split as a bonus.

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Justin Pope He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure policy.

Stock Split Watch: Is Broadcom Next? Originally published by The Motley Fool

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