Is It Too Late to Buy Broadcom Stock After Its 10-for-1 Split?

Following terrific performances last year, the S&P 500 and tech-heavy Nasdaq Composite have continued to climb by double digits so far in 2024.

One of the biggest catalysts fueling positive market sentiment is artificial intelligence (AI). While AI can take many forms, some of the biggest beneficiaries of the technology have been semiconductor stocks .

Broadcom (NASDAQ: AVGO) presents a really interesting opportunity at the intersection of AI and semiconductors. The company provides network and data center solutions, as well as cloud based tools through its subsidiary, VMware .

Investors have taken note of Broadcom's potential, sending shares up 77% over the last year. Given this massive move in such a short time frame, it's not particularly surprising that Broadcom's management decided to execute a 10-for-1 stock split earlier this month.

Let's dig into whether now is a good time to scoop up shares of Broadcom after the stock split, or if investors missed out and are best looking elsewhere.

AI will be the company's next big wave

As the chart below illustrates, the company's quarterly revenue has entered into a new phase of growth and doesn't appear to be slowing down.

AVGO Revenue (Quarterly) data by YCharts

Broadcom reports its revenue into two segments: semiconductor solutions and infrastructure software. Today, roughly 60% of Broadcom's business comes from the semiconductor solutions operation.

For the company's second quarter of fiscal year 2024, ended May 5, Broadcom's semiconductor business generated $7.2 billion in revenue -- an increase of 6% year over year.

Although this level of growth might look mundane, I think it shines light on the idea that the AI revolution is still very much in its early days. I'm actually encouraged by Broadcom's prospects, and think the growth in its semiconductor business has ample room to run.

One of the bigger reasons investors may be cheering on Broadcom stock at the moment is because the company's infrastructure software business is soaring. Revenue from infrastructure software rose 175% year over year to $5.3 billion during the company's second fiscal quarter.

However, it's important to note that not all of this newfound growth is organic . In late 2023, Broadcom closed its acquisition of VMware -- bringing a new layer of products and services to augment the company's existing semiconductor networking solutions.

Nevertheless, I'm encouraged by the impact VMware is already making on Broadcom's business. So far the acquisition looks to be paying off in a big way.

While I think many investors are aptly making predictions about the potential AI will have on Broadcom's semiconductor solutions operation, I think a more subtle tailwind is how AI can also play a big role in shaping the company's infrastructure software and cloud solutions.

Broadcom's entire business seems to be going through somewhat of a renaissance at the moment and AI is at the center of the growth narrative.

Image source: Getty Images.

Is it too late to buy Broadcom stock?

Assessing stock-split stocks can be a little tricky. Generally speaking, stock-split stocks can experience outsize momentum leading up to and shortly following the actual split event.

Since it started trading on a split-adjusted basis on July 15, shares of Broadcom have dropped about 6% as of market close on July 19.

While this dip may present a window to take advantage of some depressed price action, I'd encourage investors to zoom out and think about the bigger picture.

As my fellow Fool.com contributor Adria Cimino pointed out, stock-split stocks historically have outperformed the S&P 500 in the 12 months following a split. Although this is an intriguing data point, investors know that historic performances are not always indicative of what the future will hold.

However, the chart below might serve as a decent proxy for what Broadcom investors could expect.

NVDA data by YCharts

As depicted above, big tech companies Nvidia , Alphabet , Apple , Tesla , and Amazon have all completed stock splits over the last few years. The splits are annotated by the letter "S" in the colored circles above.

With the exception of Tesla, the share price of every company's stock in this cohort is higher today than it was at the time of the stock split. It should be noted that shares of Tesla did in fact rise following its split in 2020.

While the data above is only inclusive of a small set of companies, I think the broader ideas are pretty clear. First, quality businesses tend to witness share price appreciation in the long run. Second, recent stock-split stocks in the technology sector have largely been great investments -- even if investors decided to buy shares after the split.

Considering Broadcom is in the early chapters of its new growth story supported by strong secular tailwinds in AI, and considering the historic performances of tech stock-split stocks, I very much see Broadcom stock as a compelling buy right now and do not think it's too late to get in on the action.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy .