Broadcom (NASDAQ: AVGO) stock price is in its third consecutive week in the red as concerns about its valuation, growth, and artificial intelligence remain. After peaking at $1,437 in March, the stock collapsed by more than 15% to $1,237, meaning that it is in a deep correction zone.
Still, despite the pullback, Broadcom is one of the most successful stocks in Wall Street. It has soared by over 92% in the past 12 months and 320% in the past five years. This surge has brought its total market cap to over $573 billion.
Growth and valuation concernsBroadcom is one of the biggest players in the technology industry. Its products are used by billions of people globally. For example, Broadcom has a partnership with Apple in which it provides its 5G radio frequency components.
The company recently acquired VMware, a company that provides many products to companies from around the world. It offers solutions like Horizon, Tanzu, Telco Cloud, and Fusion. It also acquired CA Technologies in a $18.9 billion deal and Symantec in a $10.7 billion deal. Nvidia bought Mellanox in a $7 billion deal in 2020.
Broadcom has been growing at a fast pace over the years. Most of this revenue has been organic but the company has been one of the most acquisitive in the industry. Annual revenue jumped from $2.5 billion in 2013 to over $35.8 billion in 2023. It expects to make $50 billion in revenues this year.
The most recent results showed that its revenue surged by 34% to $12 billion. Part of this growth was because of the revenue provided by VMware. Its semiconductor revenue rose by 4% to $7.4 billion while its software had $4.6 billion.
Broadcom has also been an excellent rewarder of its shareholders. It has constantly raised its dividend, generating a five-year growth rate of 19.25%. The company has had dividend growth in the past 13 years.
It pairs its dividends with share repurchases. It bought back its stock worth $7.2 billion in 2023 but this was diluted slightly because of the VMware transaction. The company also has a huge exposure in the booming AI industry.
There are still some concerns about Broadcom. For one, the company has been highly acquisitive, which is not ideal, as we saw with Salesforce. I believe that the firm should pause its buyouts and focus on integrating its recent purchases.
Broadcom is also costly considering that it is trading at a PE ratio of 28.82 and a forward multiple of 26.2. Its forward EV to EBITDA multiple stands at 21.10, higher than the sector median of 14.86.
Broadcom stock price forecast
Turning to the weekly chart shows that the AVGO stock price has been in a strong bullish trend for a long time. It has constantly remained above all moving averages. The stock is still up by more than 26% above the 50-week moving average, signalling that it is getting overstretched.
Most recently, the stock has formed a bearish engulfing candlestick pattern, which is an extremely bearish sign. Still, I suspect that the stock will be a bit volatile in the coming months as concerns about its valuation and fears that the AI industry is in a bubble.
In this case, the stock will likely drop to the support at $1,100 and then resume the bullish trend as bulls target the key resistance at $1,437.
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