Buy the Spike in Broadcom Stock After its Strong Q3 Earnings?

Core Insights - Broadcom's fiscal Q3 results exceeded expectations, leading to a stock surge of up to +16% and reaching a new 52-week high of $356 per share [1] - The company is emerging as a credible competitor in the AI chip market, impacting the stock prices of Nvidia and AMD [1][2] Financial Performance - Broadcom reported record Q3 sales of $15.95 billion, a 22% increase from $13.07 billion in the same quarter last year, surpassing estimates of $15.82 billion [3] - AI semiconductor revenue rose 63% year-over-year to $5.2 billion, with VMware contributing $6.8 billion to the overall sales [3] - Q3 earnings per share increased 36% to $1.69, exceeding expectations of $1.66 [4] - Adjusted EBITDA for Q3 spiked 30% to $10.7 billion, while free cash flow soared 47% to $7 billion [4] Future Outlook - Broadcom raised its Q4 revenue guidance, expecting sales to increase 24% to $17.4 billion, above the Zacks Consensus of $16.96 billion [10] - The company forecasts Q4 AI revenue to grow to $6.2 billion, marking 11 consecutive quarters of growth [10] Product Development - Broadcom's advancement in AI is driven by its custom XPU chips, designed for high-performance computing workloads [6] - The company secured $10 billion in XPU orders from a new customer, speculated to be OpenAI, expanding its client base beyond major players like Meta and Alphabet [9] Valuation Metrics - Following the stock rally, Broadcom trades at a forward earnings multiple of 46.1X, which is a premium compared to Nvidia and AMD at 39.7X and 41.1X, respectively [12] - The price-to-forward sales valuation stands at 24X, comparable to Nvidia but significantly higher than AMD's 8.8X [12]