Why Stock-Split and Artificial Intelligence (AI) Stock Broadcom Blasted Higher on Friday

Shares of Broadcom (NASDAQ: AVGO) charged sharply higher on Friday, jumping as much as 22.7%. As of 10:35 a.m. ET, the stock was still up 21.5%.

The catalyst that sent the artificial intelligence (AI)

specialist higher was Broadcom’s strong financial results, fueled by robust demand for AI.

For its fiscal 2024 fourth quarter (ended Nov. 3), Broadcom generated revenue that surged 51% year over year to $14 billion. This fueled adjusted earnings per share (EPS) that jumped 31% to $1.42.

The results were mixed in the light of expectations, though profitability was stronger than many had expected. For context, analysts’ consensus estimates forecast revenue of $14.1 billion and EPS of $1.39.

Management pointed to a surge in demand for AI products that drove the results. AI networking revenue soared 158% year over year. The company noted that sales of custom accelerators (XPUs) doubled, while revenue from connectivity products grew fourfold.

For the upcoming first quarter, Broadcom is guiding for revenue of $14.6 billion, ahead of Wall Street’s expectations of $14.47 billion. Management also expects its margins to expand, driving its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to 66% of revenue, up from 65% in the current quarter.

Broadcom makes many of the supplementary products used in data centers, which is where most AI processing happens. The writing was on the wall earlier this year when consistently strong business and financial results pushed the stock higher, which prompted the company to initiate a 10-for-1 stock split, which was completed in July.

Management clearly expects this strong demand to continue and is forecasting AI revenue of $60 billion to $90 billion by fiscal 2027. That works out to growth of between 391% and 638% over the coming three years, compared to $12.2 billion in AI revenue in fiscal 2024. This could well be conservative, as Broadcom announced the addition of two new hyperscale customers (not included in its forecast), which could propel growth even higher.

Broadcom stock is currently trading for 36 times forward earnings. While that’s admittedly a premium, it’s a fair price to pay for a company that’s growing like gangbusters, providing the critical infrastructure needed to fuel the AI revolution.

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