Broadcom (AVGO) is a semiconductor company that sells its products to customers from different industries, such as wireless communication and enterprise storage. Broadcom is a member of the Nasdaq 100.  

The Nasdaq 100 is an index of the biggest 100 non-financial companies that are listed on the Nasdaq stock exchange. The index is heavily weighted towards the technology and biotechnology industries. This focus means that the average stock in the index is producing relatively high earnings growth rates, but the dividend yield of the index is not overly high.

Company Overview           

Broadcom has recently moved its headquarter to San Jose, CA. Before that, the company, which was created through a merger, was based in Singapore. Broadcom is a fabless semiconductor company, which means that it designs and sells chips, but the production is outsourced to so-called foundries.

This business model means that Broadcom can operate at high margins, and there is no need for extensive capital expenditures. A huge portion of the company’s cash flows can therefore be used for shareholder returns or to make acquisitions.

Broadcom’s most recent quarterly results were announced in June, the company was able to grow its revenues by 20% to $5.0 billion during the quarter. Earnings per share rose to $4.88 during Q2, 32% more than during the previous year’s second quarter.

Growth Prospects       

Broadcom was able to grow its earnings per share by more than factor 40 over the last decade. This massive growth was driven by several huge takeovers, as well as by the fact that profitability was low ten years ago. More recently the earnings per share growth rate has come down to a still very compelling 20%+ rate.

Due to the fact that maintaining such a high growth rate becomes harder the bigger a company gets, it is likely that Broadcom’s earnings per share growth rate will fall further over the coming years.