Here’s Why Broadcom Stock Is Soaring This Week

Broadcom is following Nvidia's footsteps in more than one way. Read More...

Broadcom is following Nvidia’s footsteps in more than one way.

Broadcom (AVGO 12.72%) stock has been riding the tech wave higher all year. But shares broke out this week after the company released fiscal 2024 second-quarter results. The stock has surged this week by about 20% as of Thursday afternoon trading, according to data provided by S&P Global Market Intelligence.

That has led to a more than 50% gain in Broadcom stock so far this year. Shareholders can thank both the artificial intelligence (AI) boom as well as Broadcom’s nearly $70 billion acquisition of VMware that closed late last year.

AI infrastructure winner

Even prior to Broadcom’s earnings announcement, the stock had pushed more than 6% higher this week. That’s because investors are beginning to grasp just how broad spending has become for AI-related products.

As data center construction explodes to harness the compute power needed for the many AI use cases, Broadcom is increasingly benefiting from the related infrastructure needs. That includes switching solutions for high-performance connectivity, server storage products, and other wired and wireless connectivity needs.

Last year, as OpenAI’s ChatGPT launch exemplified how broad the use of generative AI can become, Broadcom senior vice president and general manager Ram Velaga said, “It is clear that artificial intelligence, machine learning, and automation have been growing exponentially in use — across almost everything from smart consumer devices to robotics to cybersecurity to semiconductors.”

Broadcom’s latest quarterly results show how that is playing out. The company reported record revenue from AI products of more than $3 billion. Total revenue of $12.5 billion increased by 43% year over year. Also contributing was growing adoption of VMware cloud software stack solutions.

Management boosted its full fiscal year revenue expectations by 2% to $51 billion, and also sees higher profitability from that revenue. As Nvidia did last month, the company also announced a 10-for-1 stock split that will be implemented next month. While that doesn’t affect the valuation of the company, it does show management has confidence that Broadcom’s strong business results are likely to continue.

Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

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