Why Broadcom Stock Is Worth $650

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Please stay tuned for important disclosure information at the conclusion of this episode.

Dave Sekera (0:55)

Hello, I'm Dave Sekera, Morningstar's Chief US Market Strategist and the co-host of the weekly podcast The Morning Filter. Today, I'm joined by Will Kerwin, Senior Equity Analyst on our Technology Team who covers Semiconductors and Hardware Stocks. Today is Thursday, September 17th, and we're conducting a bonus episode of our podcast to conduct a deep dive into our analysis and valuation of Broadcom.

Will, thank you very much for joining us today. I'm really looking forward to this. But although before we get into talking about Broadcom, I actually have to commend you on a couple of your prior calls, a number of them that we've actually highlighted on The Morning Filter in the past. For example, I think it was early 2025 We talked a lot about Marvell and your call there. I mean, I think that was probably one of the most differentiated calls we had on the technology team at that point in time. Probably one of our most differentiated calls versus the market really across our entire coverage certainly has worked out well. I don't know how much that stock is up since then. It's up well over 200%.

And I think it's even still undervalued today.

William Kerwin (1:58)

Yeah. Well, thank you. It's great to be here and certainly Marvell has been a rocket ship since last year.

Dave Sekera (2:04)

Well, and then, of course, you know, the past couple of months, we've also been talking about in the hardware space, a lot of these commodity oriented technology, hardware companies were up a couple hundred percent, maybe even a thousand percent in some cases, you know, in the first half of the year, you really stuck to your guns on those talked about why we thought that they're overvalued. They're getting well into one star territory, some of the most overvalued stocks, and you weren't willing to fold. You kept our fair values where they were, even though the stocks kept going up. And really since June, a lot of those stocks have fallen 30, 40 percent.

I think some of them are even down 50 percent. And even from there, it still looks like they have further to fall. So again, I really like to see that balance. It's not that you're always a bear on everything and you're always not a bull on everything. So it's really nice seeing that blend and really being able to help investors that way. But let's get into Broadcom. So really, just to start, I think Broadcom is one of those names that five, six, seven years ago was not necessarily a household name. A lot of people maybe don't know exactly what the company does. It's an amalgamation of a couple of different businesses that have merged together. But can you give us that 30,000 foot view to start off with? Who are they? What do they do? Maybe talk a little bit about some of the more important product lines.

William Kerwin (3:17)

Yeah, absolutely. And honestly, what they do today is going to look vastly different than what the mix was five years ago before they were a trillion dollar market cap, before they were a household name. So I think the most important business line here is the AI chip business. Now they are a competitor to NVIDIA and NVIDIA's GPUs, but they are not exactly like for like. So what we call what Broadcom does are XPUs. And effectively you can think of these as a customized version of a GPU. So the purpose is the same, whether that be for AI training, AI inference, but rather than being what we think of as a generalized solution for that, which NVIDIA does extremely well. They can sell them to any customer in the world. Broadcom helps co-design chips for AI processing tailored to a specific customer, to a specific model, to a specific application. And so think of a large application like Google search algorithms or recommendation algorithms for Meta. They can have enough use cases for those that it becomes economical to invest in their own customized chip.