Artificial intelligence (AI) has been driving revenue and stock price growth for many technology companies recently. Investors are piling into these players who are benefiting from the AI boom now and could see even more gains in the future. After all, analysts predict that today's $200 billion AI market could exceed $1 trillion by the end of the decade.
Broadcom (NASDAQ:AFGO) He is one of the players who benefited from the movement. The semiconductor and networking giant has seen demand rise, helping the stock price rise more than 60% since the beginning of the year. But Broadcom just announced a move that will soon bring its high-flying stock to the ground. The technology company plans a stock split next month, a process that would reduce its stock price from more than $1,800 today to about $180.
The question now is: Should you buy Broadcom now or wait to acquire this AI player after the stock split? Let's find out.
Why is Broadcom a good buy?
First, a little background on Broadcom itself and why the company is generally a good buy. Broadcom makes a wide range of semiconductor and infrastructure software products – in fact, the company produces thousands of products used in a variety of fields, from data center servers to smartphones. More than 99% of Internet traffic is transmitted via Broadcom technology, a statistic that demonstrates the key role of this company in the fields of networking and communications. To increase its revenue opportunities, Broadcom recently completed its acquisition of cloud computing software company VMware.
In the latest quarter, Broadcom reported a 43% increase in revenue to more than $12 billion. AI revenues, driven by demand for dedicated AI networks and accelerators, rose 280% to $3.1 billion. During the quarter, Broadcom doubled the number of switches sold, and the company is developing the next generation of switches, optics and other tools that will support the networking needs of AI data centers in the coming years.
Broadcom has a strong track record, growing billions of dollars in revenue and profits over the years. This year, thanks to the VMware integration and demand for AI, the company raised its full-year revenue forecast to $51 billion — representing a 42% increase over last year's revenue level.
All about the Broadcom stock split
So, Broadcom is a buy – but should you buy the stock today or after the split? Stock split It is a mechanical move to reduce the price of each individual share by issuing more shares to existing holders, but it does not change the company's overall market value or stock valuation. Broadcom is planning a 10-for-1 stock split, so if you own one share, you'll get nine additional shares after the market closes on July 12. The stock will begin trading at the revised price on July 15.
Broadcom may actually be more expensive after the split if the stock continues to rise. It has already advanced about 20% since the company announced the operation, and it has already happened It pushed its value up. Today, Broadcom shares trade at 37 times forward earnings estimates, higher than levels of about 25 earlier this year. But given Broadcom's AI growth and VMware's contributions, the price still looks very reasonable at current levels.
Of course, it is impossible to predict stock movements day after day. Broadcom could also fall from now during a stock split and end up trading at a lower valuation after the split.
So, what should you do? Keep in mind that when investing for the long term, short-term price movements will not affect your returns much. A 20% gain or loss over the next two weeks won't matter if the stock gains over the next five to 10 years.
It's true that if you have, say, $200 to invest in Broadcom, buying after the split may be easier because you'll be buying a full share rather than investing in fractional shares — especially if your brokerage doesn't offer fractional shares. But if your budget is equal to or more than the price of one full stock right now, there's no reason to wait for a split to get your hands on the best AI stocks. He's making a great purchase today.
Should you invest $1,000 in Broadcom now?
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Adria Cimino He has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure policy.
Should you buy Broadcom now or after the stock split? Originally published by The Motley Fool