One chip play is up 40% in December, and its profits are growing
A stock that has suffered recently offers investors a healthy combination of price appreciation and income. Broadcom has been in the shadow of semiconductor giant and artificial intelligence darling Nvidia this year, but December has been kind to the small chip company. Broadcom shares are up nearly 40% this month alone, while Nvidia is down more than 4%. AVGO 1M shares top Broadcom last month This month’s earnings, bolstered by strong fourth-quarter earnings and a strong AI-related outlook, once again propelled Broadcom into the league of billion-dollar market capitalization companies. The company reported adjusted earnings of $1.42 per share on revenue of $14.05 billion, while analysts were looking for earnings of $1.38 per share and profit of $14.09 billion, per LSEG. Key guidance The real key to the report, however, was financial guidance going forward, according to Charles Gaffney, managing director at Morgan Stanley Investment Management and portfolio manager of the Eaton Vance Dividend Builder Fund (EIUTX). Broadcom was the second largest in the fund, as of October 31. Indeed, Broadcom CEO Hock Tan said the total market for its artificial intelligence chips and AI network components could be in the $1 billion range. -60 and $90 in 2027. “We see our opportunity in the next three years in AI is huge,” he said. on the company’s earnings call, noting that Broadcom is working with three hyperscale customers. Tan said he expects each of these customers to install 1 million AI chips in network clusters by 2027. Tan’s guidance indicates that “the path of opportunity and growth is very large and dynamic,” Gaffney said. “That seems to be a strong case that that business should continue to do very well in the coming years,” Gaffney added. “And, historically, Broadcom has been a very good dividend story.” Diversifying farmer As evidence, the company increased its quarterly dividend by 11% to 59 cents a share for fiscal year 2025. It marks the 14th consecutive annual dividend increase since the company began payments in 2011. “It’s hard to find a top-notch company that maximizes its profits in that segment and maintains a strong national vision like they do.” Broadcom’s dividend yield currently stands at 1%, but for tech names – especially those that just started paying out this year – the key is to provide sustainable dividends and grow them over time. This ultimately rewards long-term investors who buy and hold stocks, especially if they reinvest the dividend. “The theme of AI is becoming a global growth story in the marketplace,” Gaffney said. “[Broadcom] is one of the names in the technology space that gives you the best of both worlds that you see here: capital appreciation, and it offers profitability and growth.” – CNBC’s Kif Leswing contributed reporting.
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