Stock Market - This AI Giant is Likely to Join the Magnificent Seven

This AI Giant is Likely to Join the Magnificent Seven

The elite circle of the world’s leading tech stocks, affectionately termed “The Magnificent Seven,” is under constant evolution. This ever-changing group, once known to many as the FAANG stocks, saw a shift when Netflix was replaced by the likes of Nvidia and Microsoft.

So, who’s next to possibly join or shake up the ranks of the Magnificent Seven? A particular tech behemoth is on the radar, especially with its size surpassing Tesla and a recent game-changing acquisition under its belt.

Expanding Horizons with Broadcom

Broadcom (AVGO 5.64%) is making headlines, boasting an 11% increase this year, catapulting its market cap to an impressive $575 billion. This positions Broadcom as the 13th largest company globally, or 12th if one sets aside Saudi Aramco.

Broadcom’s path to assembling its business portfolio heavily relies on strategic acquisitions, a tactic expertly navigated by CEO Hock Tan. This approach of integrating high-value but underperforming tech entities into the broader Broadcom ecosystem sets it apart from the organic growth narratives of other Magnificent Seven entities.

Yet, Broadcom shares key attributes with its prestigious peers: formidable competitive advantages, robust profit margins, a knack for technological innovation, and platforms that stand to gain from advancements in generative AI.

Broadcom’s Diversified Empire

Broadcom’s stature among tech stocks is unparalleled, particularly after its colossal acquisition of VMware in October. The company now boasts a balanced diversification between semiconductors and software—a rare feat in the industry.

Before acquiring VMware, less than a quarter of Broadcom’s revenue came from software, with the company being primarily recognized for its superior networking and communications semiconductors.

This blend of software and hardware is a rarity, with companies typically leaning towards one or the other. However, Broadcom’s shift towards software, especially with VMware’s hybrid cloud platform promising significant growth, is bound to draw attention.

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VMware’s New Venture

During a recent analyst call, Broadcom’s management anticipated double-digit sequential revenue growth for VMware across all quarters this year, predicting a 40% growth in fiscal 2024—a sharp increase from its pre-acquisition growth rates.

This surge is partly credited to Broadcom’s strategic upselling, leveraging VMware’s new VMware Cloud Foundation (VCF), which offers virtualized AI services for data centers, enhancing the private and secure data center experience for large corporations.

With this, Broadcom’s software revenue, buoyed by Symantec, California Technologies, and now VMware, is expected to exceed $20 billion this year, a significant leap from the previous fiscal year’s $7.6 billion.

Broadcom’s AI Innovations

Beyond software, Broadcom’s prowess in AI hardware is notable, dominating in networking with its chipset brands and seeing explosive growth in its custom ASIC business.

This sector, vital for AI training and inference, is poised for substantial revenue growth, making up a significant portion of Broadcom’s semiconductor revenue this year.

Despite the cyclical nature of some of its businesses, Broadcom maintains strong franchises with high margins, including a key partnership with Apple.

Eyeing a Spot Among the Magnificent Seven?

With its shares trading at a relatively modest multiple and offering a notable dividend yield, Broadcom presents a compelling value proposition compared to its Mag Seven counterparts. Given its consistent performance beats and upwardly revised AI revenue forecasts, Broadcom’s outlook is optimistic.

Broadcom, now a diversified tech giant post-VMware acquisition, stands at the threshold of potentially joining or expanding the ranks of the Magnificent Seven, backed by its substantial AI-driven business segments.

Is Broadcom a worthy investment for your $1,000?

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