Our Analysis of Broadcom Inc. (AVGO)

Every Tuesday at HX Daily, we analyze one of the US stock market's biggest and most widely owned companies.

We analyze these companies using our “Quantamental” approach.

This is an analysis process that we have developed over the last three decades. It is a quick way to analyze the stock's potential.

This is a reminder that our "Quantamental" analysis is not a formal stock recommendation but rather a quick analytical tool that gives an initial view on the stock in the short and intermediate term.

Since starting this analysis process in July, we have analyzed eight of the ten largest companies in the S&P 500.

Today, we analyze Broadcom Inc. (NASDAQ: AVGO), another one of the top ten market capitalization stocks in the S&P 500.

Broadcom is a leading company in the global semiconductor industry.

The company that is now Broadcom was originally founded back in 1961 as the semiconductor products division of technology pioneer Hewlett-Packard. The division separated from Hewlett in 1999 as part of the Agilent Technologies spinoff.

This business was acquired by private equity firms KKR and Silver Lake Partners in 2005 when they formed Avago Technologies. The new company went public in 2008 and has gone on to acquire several other semiconductor businesses. The biggest of those was the $37 billion acquisition of Broadcom Corporation in 2015. They kept the old ticker (AVGO) but kept the Broadcom name.

The company sells a range of semiconductor and infrastructure software applications for data centers, networking, broadband, wireless, and industrial markets. With their leading products, they have been a beneficiary of the growth of technology and – recently – in data centers.

Here is the analysis…

1. Technical Analysis

The predecessor company, Avago Technologies, went public in 2008. The stock has done very well from the outset.

Here is the chart of the stock over the last decade…

The stock has gone from below $5 per share (split-adjusted) to a recent high of over $180 per share. That is a thirty-six-fold return and blows away the return of the overall stock market.

The chart shows that the biggest part of that move has happened in the last few years.

The company has always executed well and been a good stock, but the last few years and the data center business have really sent the stock parabolic. Two-thirds of the move in the stock has happened in just the last couple of years.

Here is the recent stock price and RSI chart…

In the last year, the stock has gone essentially straight up.

We don’t have the moving averages on this chart, but it has only breached the 100-day moving average two times. It has not gone below the 200-day moving average at all over the period.

After a spike higher in July, the stock pulled back 20% into the August low, but it has been on a fairly steady trajectory upward.

This is evident in the RSI chart as you can see that it has never traded to an oversold (30) RSI all year. This is one of the best performances of any of the biggest stocks on the S&P 500.

Clearly, the stock is in a well-established uptrend, both in the long term and in the near term. Investors recognize the company's momentum and are willing to bid the shares higher.

We don't love an entry point right with the stock near the highs and an RSI above 60, but we think the trends—and NOT being overbought—make it a buy based on the technical analysis.

TECHNICAL ANALYSIS = BUY

2. Earnings Revisions

Our readers know that we think the most vital driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings per share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

Like most well-established companies, the EPS numbers are the most widely followed at AVGO.

Here is a chart of the stock price versus the fiscal year 2025 EPS estimates for the company…

The green line are the earnings estimates, and you can see that AVGO has one of the most impressive performances in terms of earnings revisions out there.

The estimate has moved +50% higher over the last two years and has never gone down.

Finally, unlike its many technology peers, the company saw no negative revisions in the post-COVID "hangover" period. This is unique amongst the major technology stocks we have examined with our "Quantamental" approach.

Companies with these kinds of positive earnings revisions also usually have a great track record of beating numbers.

Here is that table showing the company’s performance against the analysts earning estimates for the last five years…

Wow. This is one of the most impressive performances we have seen amongst these large companies.

We will be honest—AVGO is the top ten market cap S&P 500 company that we are LEAST familiar with.

Based on this analysis, it also has the best earnings momentum and consistent track record. Other technology companies have seen good revisions and a record of beating earnings. All of them, though, stumbled in 2022—not AVGO!

The company clearly has great operating momentum, and based on earnings revisions, we think it is a buy.

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

While earnings revisions drive a stock higher in the short term, earnings GROWTH drives a stock higher in the long term.

In our INVESTING strategies, we look for companies that will grow EPS from $1 to $10. If you can find those kinds of stocks, you can make a LOT of money.

Here is the table for the EPS results of AVGO over the last ten years…

This is another impressive track record. The company has grown EPS almost ten-fold over the last decade.

It is impressive that they have not had a single down year over the period. The only year when EPS was flat was 2019.

What is more impressive is the steady pace of annual EPS growth. Other than 2019, they have posted strong double-digit growth every year. Again, this is one of the more impressive performances of the largest companies.

We think that AVGO's leading technology position in the semiconductor industry positions it to feed into the economy's leading growth areas.

Think of AVGO as a "picks-and-shovels" supplier to the most significant growth themes in the world. THIS is why the company is knocking on the door of the $1 trillion market capitalization club.

This momentum may falter at some point, but – given their track record and positioning – we think it is likely to continue.

EARNINGS GROWTH – BUY

Conclusion

As we said above, AVGO is the stock amongst the largest companies with which we were the least familiar prior to doing this analysis.

We knew of the company but didn't know its history.

To add some perspective, when the company was taken public in 2008, its market capitalization was a little more than $3 billion. Today, it is over $850 billion!

That is an increase of 283 times in 16 years – incredible!

What is also impressive is their earnings performance. They have one of the best operating track records of any of the largest companies in the S&P 500.

We were not as familiar with the company before, but now it is solidly on our radar.

We would prefer to buy the stock on a pullback, but based on the data, AVGO shares are a buy.