Revised Broadcom Thesis Amidst High Valuations
"I was completely wrong on Broadcom on 2025 and want to share some reflections on my previous bearish case. I believed that ASIC companies would develop many components in-house, but the Broadcom CEO shifted my perspective by explaining that AI companies should rely on a specialized chip maker rather than trying to compete in chip innovation themselves. For me, Broadcom remains a bit pricey compared to Nvidia, so I'm not going to buy right now. However, if there's ever a crazy sell-off on Broadcom, I think I would jump on that opportunity."
The speaker revises his earlier bearish thesis on Broadcom after hearing the CEO's take on leveraging Broadcom's chip expertise in the competitive AI market. While he remains bullish on Broadcom's long-term prospects due to new customer wins and tailwinds in AI, he currently finds its valuation high and would prefer to enter only upon a significant sell-off.
Broadcom's Valuation Shift Suggests a Near-Term Opportunity
"Broadcom's market price at $340 is actually below the intrinsic value per share I calculated for the company at $376. However, if I apply my usual margin of safety for companies like Broadcom, which is roughly 10%, it brings the stock price closer to being fairly valued rather than undervalued, which is a big change because about a month ago, the stock price was overvalued compared to my intrinsic value per share calculation. So those that are on the sidelines waiting for a good opportunity to buy Broadcom stock, I think it's almost here. I still have the stock rated as a hold, but I wouldn't be surprised if that rating changes over these new next few days or next few weeks as the valuation adjusts."
The speaker outlines that Broadcom's current market price of $340 is now closer to its intrinsic value, calculated at $376, after applying a 10% margin of safety. This shift, driven by concerns over lower gross margins from a higher mix of AI revenue, has moved investor perception from overvaluation to near fair value or slight undervaluation. While he currently holds a 'hold' rating, he signals that an opportunity may soon emerge for those waiting to enter the stock.
Trade Call: Buy AVGO Below $280 for 5-Year Upside
"So for me personally, a price I would consider buying ABGO at would be around $270 to $280 because I still believe those estimates are a little bit optimistic and I maybe the valuation of 25 times earnings. 5 years from now when competition is changing a lot of things are happening that could be optimistic as well. If it trades at 22 times earnings as an example, I would have to buy the stock at 280 for me to get a double in 5 years. So for me personally under 280 I would be very very interested around the current price."
The speaker offers an actionable trade call on AVGO, suggesting that if the stock trades under $280, it becomes an attractive buying opportunity. The trade idea is based on a calculated upside potential of nearly 89% with an expected 14% annual return over five years, despite acknowledging that current valuations may be too optimistic.
Broadcom Overpriced at Current Valuations
"That's why I always caution investors when you're evaluating stocks that trade at premium valuations or at valuations above their historical levels that there's more downside than upside in some cases. That was the case with Broadcom and I warned investors about that going into the earnings release. I said it did not look like an attractive buying opportunity and one of the elements I pointed to was the company's increasing forward PE ratio which had soared from around 22 in January of 2024 all the way up close to 50 heading into the earnings release."
The analyst provides a clear warning on Broadcom stock, stating that its premium valuation—with a forward PE ratio that has nearly doubled from 22 to close to 50—is a significant downside catalyst, making it an unattractive buying opportunity at current prices.
Renault on the Road to Recovery After Rating Upgrade
"So Renault has won back its investment grade status from S&P. So S&P has said that Renault had managed to really refresh its product lineup and broaden its presence outside of Europe. And so those two things should really help with revenue growth and with volumes over the next couple of years. And this is really a vote of confidence for the new CEO who started just over the summer. Um he's been very careful with costs. That's been a big part of his strategy."
Renault's rating upgrade by S&P is highlighted as a strong catalyst for recovery, driven by a refreshed product lineup and expansion outside Europe. The commentary emphasizes the new CEO's cost discipline and strategic market focus, suggesting potential revenue and volume growth over the next couple of years.
Broadcom Valuation and Hold Rating Amid Price Correction
"The market price is now to $339. The intrinsic value per share I upgraded today. It increased by a couple of dollars up to $376. So after applying a margin of safety, Broadcom stock looks fairly valued or slightly undervalued when measuring by my discounted cash flow model. However, I still have Broadcom stock rated as a hold because the company's market multiples valuation is still stretched in my opinion and I would like to see another five or 10% improvement or decrease in Broadcom's market price in order to upgrade the stock to a buy, but it's almost there given this big sell-off in Broadcom stock. I had the stock rated as a hold. I told investors it was too expensive in early December. I told investors not to buy this stock going into the earnings release."
The analyst analyzes Broadcom's current valuation following a significant price decline, noting that despite impressive revenue growth and accelerating AI initiatives, the company's expanding AI business is pressuring gross profit margins. He maintains a hold rating due to stretched market multiples, suggesting that a further 5-10% decline might trigger an upgrade to a buy.
Broadcom Hold Rating Due to Overdone Premium Valuation
"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.
Bullish Commentary on Broadcom
"Now, this is also really strong for Bracom, ticker AVGO. We can see after hours the stock is up roughly 1.6%. The reason this is very bullish for Bracom is Bracom is the one that helps Google kind of build these chips, not the manufacturing but the design process and they get a form of fee because of it."
The speaker offers a bullish commentary on Broadcom (AVGO), highlighting its after-hours performance and its key role in enabling Google to design chips, which is seen as a strong positive catalyst for the stock.