In recent years, numerous technological businesses have seen increase in their income and share price due to artificial intelligence (AI). Investors are flooding these companies with money because they are reaping the current benefits of the AI boom and may have much greater rewards in the future. Ultimately, economists estimate that by the end of the decade, the $200 billion AI business today might grow to over $1 trillion.
Broadcom (NASDAQ: AVGO) is one of the companies that gains from this movement. Demand for the massive networking and semiconductor company has increased dramatically, which has contributed to a more than 60% increase in the stock price since the year’s beginning. However, Broadcom has disclosed a strategy that would soon bring its soaring stock back to Earth. The software business intends to divide its stock next month, bringing its current price of almost $1,800 down to roughly $180.
The dilemma now is: Should you purchase Broadcom right away or hold off until the stock split to take advantage of this AI player? Let’s investigate.
Why Broadcom’s a good buy
Let’s start with some background on Broadcom and the reasons it’s generally a wise investment. Broadcom manufactures millions of devices that are utilized in a range of applications, from data center servers to smartphones. The company offers a vast array of semiconductor and infrastructure software solutions. The fact that over 99% of internet traffic uses Broadcom technology attests to the company’s significant influence in the networking and communication sectors. With the recent completion of its acquisition of VMware, a provider of cloud computing software, Broadcom has further increased its revenue potential.
Broadcom reported a 43% increase in revenue to more than $12 billion in the last quarter. Additionally, demand for custom accelerators and AI networking caused revenue from AI to soar 280% to $3.1 billion. Broadcom increased its switch sales during the quarter and is currently working on next-generation switches, fiber optics, and other tools to serve AI data centers’ networking requirements in the years to come.
Over the years, Broadcom has seen growth in revenue and profit, reaching billion-dollar levels. Additionally, the corporation increased its full-year sales prediction to $51 billion this year, which is a 42% rise from last year’s revenue level. This was made possible by the VMware merger and the demand for AI.
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All about the Broadcom stock split
Hence, Broadcom is a good investment, but should you buy the stock now or wait till after the split? A stock split is a mechanical process that lowers the price of each individual share by issuing additional shares to present holders; yet, the valuation of the stock or the company’s overall market value remain unchanged. After the market closes on July 12, Broadcom plans to split its shares 10-for-1, meaning that if you own one share, you will receive an additional nine. On July 15, the shares will trade at the split-adjusted price.
If Broadcom’s stock keeps rising after the split, it can become even more costly. Since the company launched the operation, it has already advanced by almost 20%, which has increased its valuation. Compared to early this year, when it traded for roughly 25 times forward profit expectations, Broadcom is now trading for 37 times. However, given VMware’s contributions and Broadcom’s growth in AI, the pricing is still quite fair at this point.
Naturally, it is impossible to forecast daily changes in stock prices. In addition, Broadcom may see a decrease in value leading up to the stock split and finish up trading at a reduced valuation.
What then ought should you do? Remember that you won’t get much of an influence from short-term price fluctuations when investing long-term. If the stock increases over the next five to ten years, it won’t matter if there is a 20% gain or loss during the next few weeks.
It is true that purchasing post-split shares of Broadcom with, say, $200 may be simpler than investing in fractional shares because you will be purchasing a full share instead of fractional ones, particularly if your brokerage does not sell fractional shares. But there’s no need to wait for the split to invest in this top AI stock if your budget currently covers the cost of one whole share or more. It’s a terrific purchase right now.
Should you invest $1,000 in Broadcom right now?
Think about the following before purchasing Broadcom stock:
The Motley Fool Stock Advisor analyst team has determined the top ten stocks that investors should purchase right now. and among them was not Broadcom. In the upcoming years, the ten equities that made the cut might yield enormous profits.