History says the Nasdaq will skyrocket in 2025. 1 split stock to buy before it does.

THE Nasdaq Composite has repeatedly reached new highs in 2024, reaching over 110 new all-time highs. Its record-breaking run has been fueled by a series of encouraging developments. Accelerated adoption of artificial intelligence (AI) was the initial catalyst for the rebound, but investor confidence was boosted by falling inflation, recent interest rate cuts and the U.S. election results . The tech-focused index jumped 43% last year and is up about 30% so far in 2024 (as of this writing). Students of history will note that the recovery will likely continue until 2025.

Stock charts reveal that the current bull market began in October 2022. Although every rally is different, history can provide context. Bull markets typically last more than five years on average. The current situation has lasted just over two years, suggesting it will likely continue into next year. Additionally, in years following gains of 30% or more, the Nasdaq rose another 19% on average, suggesting that the year ahead could be good for the market.

Investors have also welcomed the revival of stock splits. This leads them to look at companies that have split their shares, as this is usually the result of a well-run company with strong sales and profit growth. This is the case of Broadcom (AVGO 3.15%). The stock has gained 98% so far this year and 2,100% over the past decade (as of this writing). This led to a 10-for-1 stock split, finalized in mid-July.

Yet despite its recent rebound, there is reason to believe that Broadcom’s impressive performance will continue into 2025 and beyond. Read on to find out why.

An assortment of growth drivers

Broadcom offers a broad range of semiconductor, software and security products that supply the mobile, broadband, cable and data center industries, but many investors continue to underestimate its reach. Management estimates that “99% of all Internet traffic passes through some type of Broadcom technology.”

This is just the beginning. Broadcom includes “26 leading semiconductor and infrastructure software divisions,” according to the company. Its semiconductor solutions are critical components in networking, server storage, broadband, wireless and industrial areas. At the same time, infrastructure software serves the mainframe, distributed, cybersecurity, storage networking, and cloud infrastructure spaces.

Broadcom’s massive reach gave the company a strategic advantage when generative AI went viral early last year. Many of its products are essential components in data centers, where most AI processing takes place.

One of the consequences of the rapid adoption of AI has been the need to modernize data centers to cope with the rigors of AI. Nvidia CEO Jensen Huang suggests there will be more than $1 trillion in data center upgrades over the next five years, with another $1 trillion spent bringing new data centers online . This represents a significant opportunity for Broadcom.

Earlier this year, Broadcom’s recent acquisition, VMWare, was recognized by Gartnerin the Magic Quadrant as a leader in Software-Defined Wide Area Networks (SD-WAN) for the seventh consecutive year, attesting to its critical place within the industry.

The results paint a picture

The results are convincing. For its fourth fiscal quarter (ended November 3), Broadcom generated revenue of $14 billion, up 51% year-over-year. Its adjusted earnings per share (EPS) of $1.42 climbed 31%. Management made it clear that growing demand for AI was fueling the results. AI networking revenue soared 158% year-over-year, while custom accelerator (XPU) sales doubled and connectivity product revenue quadrupled.

For the upcoming first quarter, Broadcom forecast revenue of $14.6 billion, beating Wall Street’s expectations of $14.47 billion. Management also expects continued margin expansion, which would bring adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to 66% of revenue, up from 65% in the fourth quarter.

In the longer term, we can think that its growth is about to accelerate. Management forecasts AI revenue of between $60 billion and $90 billion by fiscal 2027. Compared to the $12.2 billion in AI revenue generated in fiscal 2024, this suggests growth between 391% and 638% over the next three years. The company also announced that it had added two new hyperscale customers – not included in its projections – which suggests its growth could be even more robust.

Wall Street is equally optimistic. The average analyst price target is around $234 (as of this writing), representing a potential upside of 6%. Additionally, of the 43 analysts who gave their opinions in December, 88% rate the stock as a buy or strong buy, and none recommend selling it.

However, Jefferies analyst Blayne Curtis is much more optimistic than his Wall Street colleagues. Just this week, he increased his price target to $300, representing 36% upside potential for investors. He is particularly excited about the opportunity related to application-specific integrated circuits (ASICs), which he believes will play an increasing role in AI. He goes on to note that Broadcom is “uniquely positioned with AI ASICs that are growing rapidly in complexity and volumes.”

Is the stock a buy?

One of the consequences of the recent price surge is Broadcom’s valuation. The stock currently trades at around 35 times forward earnings, compared to a multiple of 30 for the stock. S&P500. While this is certainly a premium valuation, it should not be considered in isolation. Broadcom has significantly outperformed the broader market over the past five years, generating gains of 592%, or about seven times the return of the broader index.

Looking at it this way, I’d say Broadcom is a buy.