Sector Fears Shadowing Broadcom Despite A Differentiated Outlook

It’s tough to own a nice house in a declining neighborhood, and I think that’s largely the reason that Broadcom (NASDAQ:AVGO) shares are down another 20% since my last update. While Broadcom has continued to outperform the broader sector (as reflected through the SOX), investors are finally waking up to the reality that the semiconductor industry is still cyclical and that 2023 is likely to see slowdowns in many sub-sectors.

I do see areas of concern for Broadcom over the next 12 months, but I think the underperformance is likely overstated given the company’s strong leverage to advanced data center and cloud spending, as well as the more stable enterprise software operations. Valuations across the sector got overheated on the way up though, so there is a reckoning process here for sentiment that Broadcom cannot escape. Even so, mid-to-high single-digit long-term revenue and FCF growth now support a double-digit annualized potential return, making this a name to consider as a buy-the-dip.

 

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Sector Fears Shadowing Broadcom Despite A Differentiated Outlook