Few stocks had an end to 2024 like Broadcom (NASDAQ: AVGO). Its December gains look much more impressive considering how large the corporate was before its latest massive run-up. In November, Broadcom had already crossed the $800 billion mark. Now, it is a member of the exclusive $1 trillion club.
After the stock’s recent surge, many might wonder if it will possibly keep the momentum getting in 2025. In spite of everything, its was management’s comments concerning the outlook for 2025 that helped spur the rally.
Broadcom split its stock 10-for-1 on July 15. So this latest run-up has nothing to do with the stock split, only its business results and its outlook.
Broadcom is involved in multiple industries. Its products include connectivity switches utilized in data centers, custom AI accelerator chips, mainframe software, cybersecurity software, and virtual desktops. Not all of those product lines were grown organically; many got here to the portfolio through acquisitions and mergers, equivalent to last 12 months’s $69 billion purchase of virtualization software specialist VMware.
That acquisition skewed Broadcom’s results somewhat, making its revenue growth rate look higher than it was. In its fiscal 2024 Q4, which ended Nov. 3, Broadcom’s revenue rose 51% 12 months over 12 months. Nevertheless, on an organic basis — stripping out the impact of VMware — revenue only rose 11%. That is a vital caveat, as VMware’s revenue wasn’t included in 2023 12 months’s results.
There are also questions on VMware’s long-term viability. Many corporations have called out Broadcom for mountain climbing prices massively after the acquisition. AT&T (NYSE: T) stated that the costs it was paying for VMware’s products rose 1,050% in essentially the most recent billing cycle, prompting the telecom giant to take legal motion. With a major chunk of shoppers unhappy over similar price hikes, VMware could see trouble ahead.
So, why did the market send this company up by 40% following its Q4 earnings report when it only delivered 11% organic growth and its moves with its latest acquisition are generating bad optics? All of it has to do with its AI product line.
AI-related revenue from two product lines has been a serious a part of Broadcom’s investing thesis: networking switches and custom AI accelerators. These two helped drive 158% year-over-year revenue growth in its networking division in Q4, and management doesn’t expect that growth to decelerate anytime soon, as 2025 is predicted to be one other strong 12 months.