InvestMacro

By The Ino.com Team

Broadcom Inc. (AVGO), a prominent player in the semiconductor industry, announced a 10-for-1 forward stock split set to take effect on July 15, 2024, taking advantage of a rally in its shares this year. This decision comes on the heels of an outstanding second-quarter performance, underscoring Broadcom’s strategic positioning amid the burgeoning artificial intelligence (AI) revolution.

Understanding Stock Split Mechanics and Strategic Implications for Broadcom

A stock split involves dividing each existing share into multiple shares, effectively lowering the share price proportionally while maintaining the company’s total market capitalization. In AVGO’s case, each shareholder will receive nine additional shares for every one share held, resulting in a tenfold increase in the number of outstanding shares.

The primary objective of a stock split is to make shares more affordable and accessible to a wide range of retail investors by reducing the nominal share price. Given Broadcom’s share price surpassing $1,800 recently, the split aims to address perceived affordability barriers that may have deterred investors.

The increased accessibility can broaden AVGO’s investor base, potentially stimulating demand for its shares. Consequently, a higher number of outstanding shares resulting from the stock split typically leads to higher trading volumes. This enhanced liquidity can benefit both existing and new investors, allowing for easier entry and exit from positions.

Comparison with NVIDIA’s Recent Similar Move

Broadcom’s stock split mirrors a similar move by NVIDIA Corporation (NVDA), its rival in the AI hardware market. With more individual investors gaining access to Nvidia’s shares post-split, which came into effect at the close of trading on June 7, increased trading activity and demand were observed, potentially driving share prices higher.

NVIDIA’s stock is trading above its 50-day and 200-day moving averages of $99.28 and $68.61, respectively. NVDA’s successful split this month was preceded by significant market gains, highlighting the strategic timing of Broadcom’s decision to capitalize on investor sentiment surrounding the AI and semiconductor sectors.

Historically, stock splits are viewed as a bullish signal. According to data from BofA research, total returns for companies announcing stock splits are about 25% in the 12 months after a stock split compared to 12% gains for the S&P 500 index.

Broadcom’s Unprecedented Growth Amid the AI Boom

With a $839.05 billion market cap, AVGO is a technology leader that develops and supplies semiconductor and infrastructure software solutions. The company manufactures sophisticated networking chips for handling vast amounts of data used by AI applications such as OpenAI’s ChatGPT, positioning it as one of the beneficiaries of increased enterprise investments in the boom.

According to Grand View Research, the global AI market is projected to reach $1.81 trillion by 2030, growing at a CAGR of 36.6% during the forecast period (2024-2030). As AI continues to revolutionize industry verticals, including automotive, healthcare, retail, finance, and manufacturing, chipmakers like Broadcom are at the forefront, providing the essential chips that power AI applications.

Broadcom’s second-quarter results were primarily driven by AI demand and VMware. For the quarter that ended May 5, 2024, AVGO’s net revenue increased 43% year-over-year to $12.49 billion. Its revenue surpassed the consensus estimate of $12.01 billion. Revenue from its AI products was a record $3.10 billion during the quarter. Broadcom reported triple-digit revenue growth in the Infrastructure Software segment to $5.29 billion as enterprises increasingly adopted the VMware software stack to build their private clouds.

AVGO’s gross margin grew 27.2% from the year-ago value to $7.78 billion. Its non-GAAP operating income rose 32% year-over-year to $7.15 billion. Furthermore, the company’s non-GAAP net income came in at $5.39 billion or $10.96 per share, up 20.2% and 6.2% year-over-year, respectively. Its EPS exceeded the analysts’ expectations of $10.84.

Also, the company’s adjusted EBITDA grew 30.6% from the prior year’s quarter to $7.43 billion. It reported a free cash flow, excluding restructuring and integration, of $4.45 billion, up 18% year-over-year. As of May 5, 2024, AVGO’s cash and cash equivalents were $9.81 billion.

After an outstanding financial performance, Broadcom raised its fiscal year 2024 guidance. The company expects full-year revenue of nearly $51 billion. Its adjusted EBITDA is expected to be approximately 61% of projected revenue.

Favorable Analyst Estimates

Analysts expect AVGO’s revenue for the third quarter (ending July 2024) to grow 45.6% year-over-year to $12.92 billion. The consensus EPS estimate of $12.11 for the current quarter indicates a 14.9% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending October 2024, Street expects Broadcom’s revenue and EPS to grow 43.4% and 13% year-over-year to $43.37 billion and $47.74, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 15.3% and 25.6% from the previous year to $59.22 billion and $59.95, respectively.

Bottom Line

As AI continues to revolutionize several sectors, chipmakers such as Broadcom are at the forefront, offering essential semiconductor and infrastructure software solutions powering this technology. Driven by robust AI demand and VMware, AVGO reported solid second-quarter performance, exceeding analysts’ estimates for revenue and earnings.

The management expressed confidence in the company’s growth prospects by raising the company’s fiscal year 2024 guidance for revenue to $51 billion and adjusted EBITDA to 61% of revenue. Moreover, AVGO’s strong financial health enabled it to approve a quarterly dividend of $5.25 per share, payable on June 28, 2024.

The company pays an annual dividend of $21 per share, which translates to a yield of 1.17% on the current share price, while its four-year average dividend yield is 2.69%. Its dividend payouts have grown at CAGRs of 12.9% and 17.5% over the past three and five years, respectively. Broadcom also raised its dividend payouts for 13 consecutive years.

In the last quarterly earnings release, AVGO announced a ten-for-one forward stock split of its common stock, making ownership of Broadcom stock more accessible to investors. The company’s decision to execute a stock split represents a strategic move to enhance shareholder value and broaden investor participation.

By making its shares more accessible and increasing liquidity, Broadcom positions itself to attract a diverse array of investors keen on capitalizing on the AI-driven semiconductor boom. The stock split is a pivotal catalyst that could propel AVGO’s growth trajectory forward, cementing its status as a critical player in the evolving tech industry.

In a report released on June 16, William Stein from Truist Financial maintained a Buy rating on AVGO, with a price target of $2,045. Further, Oppenheimer’s Rick Schafer increased the price target on Broadcom from $1,500 to $2,000 while maintaining a Buy rating on the stock.

In addition to Oppenheimer’s rating update, other analysts adjusted their price targets for AVGO. Goldman Sachs’ Toshiya Hari raised the price target from $1,550 to $1,850 and maintained a Strong Buy rating. Also, JP Morgan’s Harlan Sur raised the price target from $1,700 to $2,000 and maintained a Strong Buy rating on the stock.

In conclusion, for investors eyeing opportunities in the dynamic intersection of AI and semiconductor sectors, Broadcom’s ten-for-one stock split presents a compelling avenue to consider, backed by sound fundamentals and strategic foresight.

By Ino.com – See our Trader Blog, INO TV Free & Market Analysis Alerts

Source: Why Broadcom’s (AVGO) 10-for-1 Stock Split Could Attract a New Wave of Investors

By Elliott Wave International

“12345-ABC.” That’s a basic Elliott wave pattern in a nutshell. That “12345” is a so-called impulse, and it’s a key price pattern to know, because impulses point in the direction of the larger trend. In this clip from a recent Trader’s Classroom lesson, host Favio Poci shows you step-by-step how to spot an impulse and know when it’s likely over. (Market in focus: EUR/CHF, but you can apply this to any liquid market.)

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By ForexTime 

• This week set to be UK100’s 2nd most-volatile period so far in 2024
• UK100 may even see a 1000-pip intraday move
• Traders brace for BOE decision, UK economic data
• UK100 still holding on to QTD gains, but 3.8% lower from ATH
• Wall Street predicts 15% future gains over next 12 months

This week could see big price swings for the UK100 stock index.

Markets currently predict this week to be the 2nd most-volatile period so far this year for this benchmark stock index.

The year-to-date peak was back in April, when Iran launched its unprecedented attacks on Israel, which stoked risk-off sentiment across global financial markets.

NOTE: FXTM’s UK100 stock index tracks the benchmark FTSE 100 index.

What could move the UK100 this week?

Traders will be highly tuned in to these 3 major economic events in the UK:

1) Wednesday, June 19th: UK May consumer price index (CPI)

The consumer price index, which measures headline inflation, is a key piece of economic data which tells investors and traders when the UK central bank can start cutting interest rates.

Here’s what economists predict for this week’s CPI releases:

• CPI May 2024 vs. April 2024 (month-on-month): 0.4%
  If so, that would be an uptick from April’s 0.3% month-on-month figure.
• CPI May 2024 vs. May 2023 (year-on-year): 2.0%
  If so, that would be considerably lower than April’s 2.3% year-on-year figure.
• CPI core (excluding prices of energy, food, alcohol, and tobacco) year-on-year: 3.5%
  If so, that would be considerably lower than April’s 3.9% year-on-year figure.

As the CPI trends lower to the central bank’s 2% target, that increases the likelihood of a BOE rate cut.

In addition to the above, markets will also be shown the latest inflation rates on services, housing costs, retail prices, and producer prices.

POTENTIAL SCENARIOS:

• UK100 index may push higher: if UK inflation does moderate lower towards the BOE’s 2% target, perhaps paving the way for a UK rate cut.
• UK100 index may be dragged lower: if UK inflation proves higher-than-expected, taking its own sweet time in moderating towards the BOE’s 2% target, in turn delaying UK rate cuts.

Over the past 12 months, the UK CPI have triggered upside moves as much as 1.3%, or as much as 0.56% declines, in the 6 hours after the data release.

2) Thursday, June 20th: Bank of England (BOE) rate decision

To be clear, the BOE is not expected to lower its bank rate this week from its current 5.25% level.

If it does, that could be a major shocker for the UK100 index!

• The odds for a rate cut on August 1st is down to a coin toss (47% chance).
• Meanwhile, there’s an 84% chance currently given for a mid-September rate cut.

With those expectations in mind, investors and traders worldwide will be scouring for clues as to what the BOE might say about the timing of its eventual rate cut.

POTENTIAL SCENARIOS:

• UK100 index may push higher: if the BOE signals that its rate cut might happen sooner (August?) rather than later (September?)
• UK100 index may be dragged lower: if the BOE pushes back on the idea of imminent rate cuts, saying that its bank rate has to stay at the 5.25% peak for longer to convincingly subdue UK inflation.

Over the past 12 months, BOE rate decisions have triggered upside moves as much as 1.1%, or as much as 0.5% declines, in the 6 hours after the data release.

3) Friday, June 21st: UK May retail sales, June purchasing managers indexes (PMIs)

Overall, these data points are expected to show that the UK economy is on a steadier footing:

• UK retail sales fared better in May, both on a month-on-month as well as year-on-year basis, compared to April 2024.
• The manufacturing, services, and composite PMIs are expected to hold above the 50 line, which denotes expanding conditions (as opposed to a sub-50 reading which points to contracting conditions for that sector).

POTENTIAL SCENARIOS:

• UK100 index may push higher: if the UK retail sales and PMI data come in below market expectations, forcing the BOE to proceed with rate cuts sooner rather than later.
• UK100 index may be dragged lower: if the UK economic data exceeds market expectations and forces the BOE to delay its rate cuts.

Over the past 12 months, the UK retail sales data releases have triggered upside moves as much as 1.4%, or as much as 1.2% declines, in the 6 hours after the data release.

Political turmoil to inject more UK100 volatility?

As the French political turmoil has amplified investor angst surrounding European stock indexes (EU50, FRA40, etc.), the UK100 index has been able to hold on to its quarter-to-date (QTD) gains so far:

• NETH25: +4.4%
• UK100: +2.3%
• GER40: -2.6%
• EU50: -4.5%
• FRA40: -8.5%

The above performance has enabled the UK stock market to reclaim the title as Europe’s largest stock market from France.

However, fundamental investors also note that the UK elections are set for merely two weeks away, on July 4th.

The closer we get to polling day, the more influence UK politics could hold over this benchmark stock index.

How might UK100 fare over the long term?

Wall Street analysts predict another 15% potential upside (12,000 pips / 1,200 index points) from the UK100’s current levels over the next 12 months.

But first, the above-mentioned near-term events must first be overcome before potentially crossing above the 9,300 level by this time in 2025, assuming Wall Street’s forecasts prove true.

From a technical perspective …

At the time of writing, the UK100 is trading about 3.8% below its all-time high (ATH), using intraday prices, of 8486.4 set on May 15th.

However, the 8120 level has provided support in recent sessions, with prices not straying far from its 50-day simple moving average (SMA) over the past week.

POTENTIAL RESISTANCE

• 50-day SMA:  immediate resistance
• 8250: upper downtrend line
• 21-day SMA

POTENTIAL SUPPORT:

• 8120 area: crucial support from recent sessions.
• 8100: downward lower trendline
• 8020 area: support in late-April 2024

However, such a drastic decline (to 8020) would have to come by way of an aggressively hawkish BOE or a serious bout of risk-off sentiment across global financial markets.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com