Broadcom Hold Rating Due to Overdone Premium Valuation

about 1 month ago

Parkev Tatevosian, CFA

"That's why I pointed to investors not to buy this stock because the valuation had gotten in my opinion well ahead of itself. And even when I evaluated the stock using my proprietary discounted cash flow model, I calculated an intrinsic value of around $374. And after the 10% decline today, the market price is now below my intrinsic value at $363. This wasn't the case before the earnings; after the earnings, it's now below, but it's not enough to incorporate the margin of safety, which I utilize for every stock. I would say it's fairly valued using my proprietary discounted cash flow. Comprehensively, when including the market multiples and other valuation metrics, Broadcom stock looks slightly overvalued, so I maintain my hold rating on this business."

The analysis highlights that despite a decline in Broadcom's stock price following earnings, the discounted cash flow model still shows the stock trading near intrinsic value. However, the premium valuation driven by rapid AI revenue growth appears excessive, prompting a hold rating rather than a buy recommendation.

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