Mad Hedge Technology Alerts!
Broadcom (AVGO) has gone through several major transformations since its founding in 1991, and a chart of the stock looks like a hockey stick.
AVGO is now worth close to $600 billion and the show isn’t over yet folks, there is more yet to come.
AVGO has a history of buying growth using debt.
Prior to buying Broadcom, Avago had already acquired a long list of smaller companies to expand its portfolio of wireless, optical, and data storage chips.
By paying $37 billion for Broadcom, it gained even more mobile, networking, wireless, and industrial chips. That inorganic growth strategy made it one of the world's largest chipmakers.
Broadcom subsequently expanded into the infrastructure software market by buying CA Technologies in 2018, Symantec's enterprise security division in 2019, and the cloud software giant Vmware in 2023.
Those acquisitions should diversify its business away from the cyclical semiconductor market and curb its dependence on Apple, which still accounted for 20% of its revenue over the last two fiscal years.
Growth in the 20% range should be driven by three long-term catalysts.
First, the expansion of the generative artificial intelligence (AI) market should trigger stronger sales of its data center and infrastructure chips over the next few years.
Second, its sales of chips to mobile and IT infrastructure customers should heat up again as the macro environment improves.
Apple also signed a new blockbuster deal to buy Broadcom's 5G radio frequency components and other wireless connectivity components for several more years last May, so it won't lose its top semiconductor customer anytime soon.
Broadcom's aggressive expansion strategies have been lucrative, but the sprawl could weaken the company. If that happens, investors will be a lot less forgiving of its rising debt and dilution.
I fully expect strong double-digit revenue growth in the company's AI-related businesses.
I anticipate a proliferation of Gen AI across a broad set of data center workloads to drive strength in Broadcom's custom compute offload and next-generation Networking businesses both in the near- and medium term.
There is also a strong chance of a cyclical recovery in the company's non-AI business.
In addition, I expect synergy capture following the acquisition of VMware, to drive operating margin expansion and earnings growth well in excess of the industry average.
The last lever that will affect stock appreciation will come in the form of shareholder returns.
I do believe that AVGO will ramp up the dividends as revenue accelerates.
Profits went from around $11.5 billion 2 years ago to $14 billion last year.
It’s easy to see the chip company blow by $16 billion this year as well.
It is well on its way to becoming a trillion-dollar company.
I do believe they will reach that goal around 2030.
The stock has more or less gone parabolic and now sitting around $1,200 per share.
It’s been like that for a while now.
Any dip to around $1,100 or $1,000 would be classified as a buying opportunity.
Mad Hedge Technology Letter
January 17, 2024
Fiat Lux
Featured Trade:
(GROW WITH CROWDSTRIKE)
(CRWD), (NVDA)
CrowdStrike (CRWD) is expensive by any metric, but so are other tech stocks like Nvidia (NVDA).
The trajectory of the stock still looks bright.
The cybersecurity company truly dishes out impressive growth numbers.
They are expected to grow sales by 39% over the next year and growth remains voluminous with no headwinds appear in the short term.
I’d be foolish not to mention one of the largest tailwinds in the tech sector in the form of defending and deterring digital malicious actors.
It’s real and capital is being allocated towards it.
The global cost of cybercrime is expected to double by 2028.
Sporting a market capitalization of $68 billion, CrowdStrike would need annualized returns of 18% to reach the $1 trillion club by 2040.
What do they mainly do?
Sifting through trillions of data points every week, CrowdStrike's single-agent, cloud-based cybersecurity platform grows more robust for each additional customer that joins its platform.
Quickly expanding its solutions from focusing primarily on endpoint protection (think laptops, printers, and servers) to becoming a complete security platform, CrowdStrike has grown from three security modules in 2016 to 27 today.
Each module provides a unique security solution and can be added by customers to fit their specific needs - all by relying upon just one agent, CrowdStrike's Falcon platform. The average number of agents on an endpoint today is 13 or more, so CrowdStrike's platform offers much-needed vendor consolidation for businesses looking to simplify their operations.
CrowdStrike is gradually becoming a one-stop shop for businesses' cybersecurity needs. Its growth potential and optionality seem almost boundless as it releases new modules tailor-made for its customers' desires. Look no further than two of its recent module advancements, each highlighting the company's ongoing shift toward becoming a complete security platform:
Falcon ID: CrowdStrike's identity protection and detection modules could become the company's next massive growth outlet. With 80% of global attacks stemming from exploited IDs, sales for these solutions grew from $7 million in annual recurring revenue (ARR) in Q3 of 2021 to over $200 million in Q2 of 2024.
Falcon Cloud: Bolstered by its recent acquisition of Bionic, which focuses on identifying and protecting items in the cloud, CrowdStrike now offers a complete cloud security solution. Growing its ARR from $106 million in Q4 of 2022 to nearly $300 million today, this cloud unit operates in a market expected to be worth over $32 billion by 2028.
Crowdstrike also landed an eight-figure deal from the federal government in its latest quarter. It counts less than 1% of the public sector as customers, so deals like this ignite a juicy channel of new revenue.
Thanks partly to its land-and-expand business model, CrowdStrike sees increasing profit margins for each additional module it sells to existing clients and each new customer it adds.
Who doesn’t like accelerating revenue and hypergrowth?
That’s what you get from CRWD.
The stock has been in overdrive pushing to new heights so I wouldn’t chase it right here.
It was only 365 days ago that the stock was at $101 and just touched $283.
That extraordinary rise is not the norm but is common with hyper-growth stocks.
It’s time to take the foot off the pedal and wait for a large dip which I do believe we will get.
That will be the next buying opportunity around $240 per share for CRWD.
