Should You Buy Broadcom Now -- or After the Stock Split?

Artificial intelligence (AI) has been driving the revenue and share price growth of many technology companies in recent times. Investors are piling into these players that are benefiting from the AI boom now and could have even more to gain down the road. After all, analysts predict that today's $200 billion AI market might surge past $1 trillion by the end of the decade.

Broadcom (NASDAQ: AVGO) is one of the players benefiting from the movement. The semiconductor and networking giant has seen demand take off, and this has helped the stock price to climb more than 60% since the start of the year. But Broadcom just announced a move that soon will bring its high-flying stock down to Earth. The tech company is planning a stock split next month, an operation that will lower its stock price from more than $1,800 today to about $180.

Now the question is: Should you buy Broadcom now or wait to get in on this AI player after the stock split? Let's find out.

should you buy broadcom now -- or after the stock split?

An investor looks at something on a phone.

Why Broadcom's a good buy

First, a bit of background on Broadcom itself and why the company generally is a good buy. Broadcom makes a wide variety of semiconductor and infrastructure software products -- in fact, the company produces thousands of products used in a variety of areas, from data center servers to smartphones. More than 99% of internet traffic travels through Broadcom technology, a statistic showing the major role of this company in the areas of networking and connectivity. Further expanding its revenue opportunity, Broadcom recently completed its acquisition of cloud computing software company VMware.

In the most recent quarter, Broadcom reported a 43% increase in revenue to more than $12 billion. And AI revenue, driven by demand for AI networking and custom accelerators, surged 280% to $3.1 billion. During the quarter, Broadcom doubled the number of switches sold, and the company is developing next-generation switches, optics, and other tools that will support the networking needs of AI data centers in the coming years.

Broadcom has a positive track record, growing revenue and profit into the billions of dollars over the years. And this year, thanks to the VMware integration and AI demand, the company raised its full-year revenue forecast to $51 billion -- that represents an increase of 42% from last year's revenue level.

All about the Broadcom stock split

So, Broadcom is a buy -- but should you get in on the stock today or after the split? A stock split is a mechanical movement to lower the price of each individual share by issuing more shares to current holders, but it doesn't change the total market value of the company or the stock's valuation. Broadcom is planning a 10-for-1 stock split, so if you hold one share, you'll receive an extra nine after the July 12 market close. The stock will begin trading at the split-adjusted price on July 15.

Broadcom may actually be more expensive post-split if the stock continues to climb. It's already advanced about 20% since the company announced the operation, and this has pushed its valuation higher. Today, Broadcom trades for 37 times forward earnings estimates, higher than levels of about 25 earlier this year. But considering Broadcom's AI growth and the contributions from VMware, the price still looks very reasonable at current levels.

Of course, it's impossible to predict day-to-day stock movements. Broadcom also could decline from now through the stock split and end up trading at a lower valuation post-split.

So, what should you do? Keep in mind that, when investing over the long term, short-term price movements won't impact your returns by much. A 20% gain or loss over the next couple of weeks won't matter if the stock delivers an increase over the coming five to 10 years.

It's true that if you have, say, $200 to invest in Broadcom, buying post-split may be easier because you'll buy a full share rather than investing in fractional ones -- especially if your brokerage doesn't offer fractional shares. But if your budget equals the price of one full share right now or more, there's no reason to wait for the split to get in on this top AI stock. It makes a great buy today.

Should you invest $1,000 in Broadcom right now?

Before you buy stock in Broadcom, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $801,365!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of June 10, 2024

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

OTHER NEWS

5 hrs ago

Modi’s Russia visit part of India strategy to boost security amid China tensions: analysts

5 hrs ago

FTSE 100 ends lower on Burberry profit warning, US political worries

5 hrs ago

Russian Warships Arrive in China For Joint Exercises Near South China Sea - TaiwanPlus News

5 hrs ago

Asagba-in-Council writes President Tinubu over creation Anioma State

6 hrs ago

Rwanda: President Kagame reelected with 99% — early results

6 hrs ago

NY Fed finds rise in credit rejection rate in June

6 hrs ago

Trump’s Maga coin surges by 46.9% after assassination attempt in Pennsylvania

6 hrs ago

Preseason: Ten Hag blasts Man Utd players after Rosenborg loss

6 hrs ago

Serie A: Osimhen battling with muscle fatigue

6 hrs ago

Review Of The Best Golf Holes

6 hrs ago

German Chancellor Says Deal With China Over EV Tariffs Remains Possible - TaiwanPlus News

6 hrs ago

I stand firmly in support of Tinubu – Senator Lawan debunks media reports

6 hrs ago

Court adjourns suit against Oba of Benin to Oct 17

6 hrs ago

Stand up against Nnamdi Kanu’s rendition – Ejimakor challenges Britain

6 hrs ago

Biafra: Simon Ekpa announces return of athletic medals to Nigerian Govt

6 hrs ago

Morning Bid: Trump hit steepens curve; China's economy judders

6 hrs ago

Fed's Powell touts progress on inflation

6 hrs ago

Nigeria: High cost of living bites citizens hard

6 hrs ago

Why Tesla and Rivian Stocks Went in Opposite Directions Today

6 hrs ago

Top EU officials to boycott Hungary meetings after Putin talks and China visit

6 hrs ago

Column-US Treasury futures positions at extremes: McGeever

6 hrs ago

Tinubu: Ndume’s voice can’t be suppressed – Arewa youths tackle Northern elders

6 hrs ago

Everton look to unsettled Serie A playmaker as they plan for life after Onana

6 hrs ago

Done deal: Man Utd defender's exit is confirmed to Villarreal in £8.4m deal

7 hrs ago

Global smartphone market recovers with Samsung, Apple ahead of Chinese brands Xiaomi, Vivo

7 hrs ago

Huawei smartphone chips no longer top secret as stores have green light to tell customers

7 hrs ago

Tinubu has already bought $100m presidential jet – Sowore claims

7 hrs ago

15 Side Hustles To Build a $1,000 Emergency Fund in a Month

7 hrs ago

Another US billionaire publicly endorses Trump after assassination attempt

8 hrs ago

Man Utd still interested in signing £60m striker after landing Zirkzee

8 hrs ago

Ukraine: Farm Labour Shortage Impacts Crop Hauling Amid Low Prices | Video

8 hrs ago

Safaricom postpones planned maintenance for M-Pesa, other services

8 hrs ago

I’m a Bank Executive: Here Are 3 Money Habits I Swear By

8 hrs ago

5 players who won Copa America Player of the Tournament without lifting the trophy

8 hrs ago

Why F1 upgrade stumbles have become twice as costly

8 hrs ago

Fed's Powell: Latest data 'add somewhat to confidence' inflation is returning to 2%

8 hrs ago

European shares fall, led by luxury sector, utilities

8 hrs ago

Euro 2024 Final: Alan Shearer names England star who wasn’t happy with Southgate

8 hrs ago

Nico Williams: Spanish winger joins 1 other star as the only two players to have won Euros

8 hrs ago

Avaada secured 820 MWp hybrid project in India

ALONGWALKER VIETNAM: Kênh khám phá trải nghiệm của giới trẻ, thế giới du lịch ALONGWALKER INDONESIA: Saluran untuk mengeksplorasi pengalaman para pemuda global