Broadcom (AVGO 2.10%) stock is on a tear in 2024, rising 28% in the year's first two months as investors search frantically for a way to invest in the artificial intelligence (AI) revolution ... without paying up for Nvidia's $2 trillion market capitalization.
At a market cap less than one-third of Nvidia's, and only half the price-to-sales ratio, investors may see Broadcom as a cheaper play on AI. One investor arguing like this is investment bank Oppenheimer, which on Friday raised its price target on Broadcom stock to a mind-boggling $1,500 per share.
Is Oppenheimer right?
NASDAQ: AVGO
Key Data Points
Is Broadcom stock a buy?
Heading into its March 7 fiscal Q1 report, most analysts have muted expectations for Broadcom. On the one hand, sales growth could be quite good, with consensus forecasts seeing Broadcom sales up 31.5% to $11.7 billion. On the other hand, no one's particularly optimistic that Broadcom will translate sales growth into earnings growth. Wall Street has Broadcom pegged for a $10.29 per share profit -- down half a percentage point from last year's Q1.
Now, with Oppenheimer telling investors Broadcom will "outperform" the stock market, you might think it predicts an earnings beat next week. But in fact, Oppenheimer doesn't expect Broadcom to beat. As explained in a note on TheFly.com Friday, Oppenheimer predicts "in-line" sales and earnings -- meaning, it thinks Broadcom will report exactly the same sales and earnings that everyone else thinks it will report.
If this is how things play out, what does it mean for investors?
Well, not to be mean, but it basically means that Broadcom is a very expensive stock -- and probably, too expensive to buy. Priced at 39.4 times trailing earnings, and with long-term earnings expected to grow no faster than 14% per year, Broadcom stock has a pricey 2.8 price/earnings-to-growth (PEG) ratio. In contrast, Nvidia stock costs 66.3 times earnings. With a 31.6% projected growth rate; that's a PEG of 2.1.
It turns out, the cheaper way to invest in AI may be to just buy Nvidia stock after all.
