Key Takeaways
- On Mad Money, Jim Cramer identified Broadcom as potentially undervalued, noting the stock “may be too cheap to ignore” following a decline of more than 10% over the past month
- Shares have fallen approximately 7% since the company reported September 2 quarterly results, now trading roughly 30% under peak levels
- Third fiscal quarter revenue reached $29.6 billion, representing an 85.5% year-over-year increase, while AI chip sales jumped 221% to $16.7 billion
- The company increased its annual AI revenue forecast to $58 billion, with long-term targets reaching $230 billion by fiscal year 2028
- The forward price-to-earnings ratio has contracted to 18.1x, while valuation analysis suggests fair value around $459.95, indicating potential upside of 35.5%
Broadcom shares were changing hands near $347 on September 17, climbing approximately 2.3% during the session, though remaining significantly below the peaks reached in June.
During his September 14 broadcast of Mad Money, Jim Cramer singled out Broadcom as a compelling opportunity within the beaten-down artificial intelligence sector. His assessment was direct: the shares have been excessively penalized for what amounts to a modest shortfall in forward-looking estimates.
“Down here, roughly 150 points below its June high, the stock may be too cheap to ignore,” Cramer stated.
The decline Cramer referenced began following September 2, when the company released its third fiscal quarter performance. Revenue totaled $29.59 billion, exceeding analyst expectations of $29.25 billion. AI semiconductor sales specifically reached $16.7 billion, marking a 221% year-over-year surge.
Even with those strong results, shares declined 3.39% that trading day. The concern centered on forward guidance, which analysts interpreted as meeting expectations rather than delivering the substantial surprises the market had grown accustomed to.
This response has emerged as a recurring theme. The second fiscal quarter followed an identical trajectory: strong performance metrics followed by a 13% share price decline.
Revenue Outlook and Expansion Plans
Company leadership increased their full-year AI revenue forecast to $58 billion from the previous $56 billion estimate. Looking further ahead, they outlined projections of $115 billion for fiscal 2027 and $230 billion by fiscal 2028. The company’s remaining performance obligations total $179.2 billion, providing substantial insight into committed future revenue streams.
Broadcom serves major technology companies including Alphabet and Meta as hyperscale AI clients, delivering customized accelerators and advanced networking infrastructure for some of the world’s most ambitious artificial intelligence deployments.
Total revenue expanded 85.5% year-over-year during the third fiscal quarter, while levered free cash flow accumulated to $39.4 billion through July 31. The company’s return on equity registers at 44.2%.
Price Metrics and Technical Analysis
The earnings-related pullback has reduced AVGO’s forward P/E multiple to approximately 18.1x, marking compression from earlier 2024 trading levels. The trailing earnings multiple remains at 42.4x, while free cash flow yield stands at 2.4%.
Fundamental valuation frameworks estimate fair value at $459.95, implying 35.5% appreciation potential from present prices. Wall Street analyst consensus targets point to even greater gains, with average upside projections around 57.6% based on late July data.
Technical indicators present a more cautious picture. Both daily and weekly momentum signals register as Strong Sell. The daily RSI measures 32.46, approaching oversold levels, while the weekly RSI stands at 43.26.
Institutional investor enthusiasm remains robust. Based on Insider Monkey tracking, 170 hedge funds maintained Broadcom positions during the latest reporting period, declining marginally from 173 the previous quarter. Fisher Asset Management controlled the largest stake with 15.1 million shares.
Short selling activity remains limited, with only 1.08% of available float sold short as of August 31.
AVGO closed at $347.30, gaining $7.79 during the session.
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