Broadcom Stock Soars on Stellar Earnings Beat - Here’s Why Investors Are Cheering

Broadcom just delivered an earnings knockout that sent shares skyrocketing.

Revenue smashed expectations

The chipmaker posted numbers that left Wall Street analysts scrambling to upgrade their price targets. Every key metric screamed strength - from cloud infrastructure demand to enterprise software adoption.

AI-driven datacenter boom fuels growth

Broadcom's strategic positioning in AI accelerators and networking solutions paid off big time. Their custom silicon business is eating competitors' lunch while enterprise clients keep writing bigger checks.

Guidance blows past estimates

Next quarter's forecast suggests the momentum isn't slowing down. Management's confidence echoes through raised projections that have even the most bearish analysts cracking a smile.

Because nothing makes institutional investors happier than beating expectations - except maybe beating them while short sellers get squeezed into oblivion.

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Broadcom Q3 earnings

Not all the news was as good as the above makes it sound. "Adjusted" earnings may have been $1.69 per share, but actual earnings as calculated according to generally accepted accounting principles (GAAP) were barely half as good -- $0.85 per share. (They were a whole lot better than last year, however, when Broadcom lost $0.40 per share in Q3!)

Broadcom's revenue surged 22% year over year in Q3, with "custom AI accelerators" providing much of the growth; Q3 artificial intelligence revenue, says Broadcom, grew 63% year over year. And free cash FLOW for the quarter was a robust $7 billion, much stronger than reported net income ($4.1 billion), and up a strong 46.6% year over year.

Is Broadcom stock a buy?

How should one value Broadcom stock and decide whether it's a buy?

At its $1.6 trillion market capitalization, Broadcom stock costs a staggering 168 times earnings -- quite a high multiple even if Broadcom hits the 30% annualized earnings growth rate that Wall Street analysts project for it. The fact is, even valuing the stock on its more robust free cash flow, Broadcom sells for a 70x multiple, which looks rich even for 30% annualized growth.

All things considered, even after the fantastic quarter Broadcom just turned in, I cannot call this very expensive stock a buy.