Why Broadcom Stock Rallied Thursday Morning
Key Points
The chipmaker climbed higher on news regarding two expanding partnerships.
Broadcom's custom processors are in high demand among some of the biggest names in tech.
Despite its stellar growth, the stock is still surprisingly affordable.
- 10 stocks we like better than Broadcom ›
Shares of Broadcom (NASDAQ: AVGO) charged higher Thursday morning, climbing as much as 3.9%. As of 11:40 a.m. ET, the stock was still up 3%.
The semiconductor specialist continued a rally that began yesterday, sparked by news regarding its deals with some of the world's biggest companies.
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A $30 billion commitment
Word broke yesterday that Apple (NASDAQ: AAPL) inked an expansive new multiyear deal with Broadcom. The iPhone maker announced that it plans to spend more than $30 billion on Broadcom chips over the next five years.
In a press release, the pair plan to "design and produce custom silicon components and cutting-edge wireless connectivity technologies for a wide range of Apple products." The deal will include a $1.5 billion expansion and modernization of Broadcom's manufacturing facility in Fort Collins, Colorado. The $30 billion commitment will underpin the production of more than 15 billion semiconductors in the U.S.
The planned investment will allow the chipmaker to produce "advanced radio frequency components -- including FBAR filters -- and advanced wireless connectivity technologies." These components facilitate a wide variety of radio signals used by iPhones for 5G voice and data transmission, Bluetooth, Wi-Fi, and GPS navigation, among others.
And more
This news was followed by a Reuters report that Meta Platforms (NASDAQ: META) plans to begin production of its own in-house artificial intelligence (AI) chip as early as September. The specialty processor, code-named Iris, was designed by Broadcom and will be used to improve AI capabilities on Facebook and Instagram, according to the report.
Despite the company's expanding opportunities and growing backlog, Broadcom stock is currently selling for 21 times next year's expected earnings. Furthermore, the stock's price/earnings-to-growth (PEG) ratio -- which factors in the company's impressive growth -- clocks in at 0.53, when any number lower than 1 is the standard for an undervalued stock.
This gives astute investors the opportunity to buy Broadcom stock for an attractive price.
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Danny Vena, CPA has positions in Apple, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Apple, Broadcom, and Meta Platforms. The Motley Fool has a disclosure policy.
