Broadcom (AVGO)
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I keep a close eye on growth (and margin). There is no point investing in companies with falling growth, tempered with the fact as numbers get very large you can't keep growing at the same pace. However PEG is a critical metric for a mature business. I'd never pay over 2. A decade ago the gold standard was 1.0 and today the experts would have you believe anything less than 2 is a good proposition-i strongly disagree.
Palantir has a PEG of 4-5 and it's interesting that their management and many analysts will point to high growth, high margins etc. But Nividia beats it on all those key metrics and yet has a PEG of 0.5. So if anyone wonders how this comes about, I don't blame you because it makes no sense to me either. We don't hold the stock and won't, for precisely this reason. It's a good business but imo its valuation is obscene. As expected it's gone nowhere, in fact those that purchased mid 2025 are flat, which is exactly what happens at extreme valuations. And if management made just one misstep the stock will be cut in half.
I say this purely to articulate that valuation always needs a sense check, never get caught up in FOMO, there are some simple numbers anyone can look at to get a rough guide on relative value. And investing is all about risk and return. A stock with a very frothy valuation can certainly move much higher but when you buy it you are taking on much more risk relative to the gains you might make.
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Breaking
Broadcom announced agreements with Google and Anthropic, today and are shaping up to be some of the most significant AI infrastructure deals in the industry. The long-term contract with Google runs through 2031 and covers the development and supply of future-generation tensor processing units (TPUs) as well as networking and other components for next-generation AI racks.
While the company has not disclosed financial terms, the scale and strategic nature of the deal suggest it could generate tens of billions of dollars in revenue over the next decade.
In parallel, the agreement with Anthropic gives the AI chatbot company access to approximately 3.5 gigawatts of TPU compute capacity starting in 2027. Industry estimates for the cost of building and operating TPU-scale AI hardware indicate that this portion alone could represent multi-billion to potentially tens of billions USD in infrastructure investment.Combined, the two deals could plausibly exceed $50 billion USD, making them a transformative, multi-year revenue driver for Broadcom and cementing its role in the rapidly expanding AI hardware market.
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When the 'news'(fake) dropped I was highly sceptical...also the rumour Nvidia was buying DELL-makes no sense at all. DELL is a low margin capital intensive business -the exact opposite environment that Nvidia operates in.
JPM says reports that MRVL won Google TPU business are false, arguing Google is talking to multiple parties while AVGO remains the clear incumbent.