Broadcom Inc. (AVGO): Our Calculation of Intrinsic Value

Core Viewpoint - Broadcom Inc. is currently trading significantly above its intrinsic value based on conservative DCF assumptions, indicating that the market perceives it as a high-growth AI beneficiary despite limited margin of safety at current prices [4][5]. Company Profile - Broadcom is a leading semiconductor and infrastructure software company with strong positions in custom AI accelerators, networking chips, wireless components, and mainframe software [2]. - The company has deep integration with hyperscalers, telecom operators, and enterprise customers, benefiting from high-margin chipsets and mission-critical infrastructure software [2]. - Recent expansion into cloud and virtualization capabilities through VMware enhances its competitive advantage in the industry [2]. DCF Analysis - The DCF model uses a discount rate of 10% and a terminal growth rate of 3% [3]. - Forecasted free cash flows (in billions USD) are projected as follows: - 2025: $28.0 → PV: $25.5 - 2026: $30.0 → PV: $25.8 - 2027: $32.0 → PV: $26.1 - 2028: $34.0 → PV: $26.4 - 2029: $36.0 → PV: $26.7 - Total present value of free cash flows is calculated at $130.5 billion [3]. - Terminal value, using a perpetuity growth model, is estimated at $529.7 billion, with a present value of $368.2 billion [3]. - The enterprise value is determined to be $498.7 billion [3]. Net Debt and Equity Value - Broadcom's net debt is calculated as follows: - Cash & Equivalents: $10.718 billion - Total Debt: $64.229 billion - Net Debt = $53.51 billion [4]. - The equity value is derived from the enterprise value minus net debt, resulting in $445.2 billion [4]. - With approximately 4.70 billion shares outstanding, the intrinsic value per share is estimated at $95 [4]. Conclusion - The DCF value of Broadcom is $95, while the current market price is around $406, indicating a margin of safety of -76% [4]. - Despite being a strong generator of free cash flow in the semiconductor industry, the stock offers limited margin of safety at current prices [5].