AVGO is undervalued; fair value $523 vs price $353 implies ~48% upside in 12-18 months; preferred over MRVL.

many of these AI companies , including Broadcom and Marvell, are being drawn to, as they are poised to be among the biggest beneficiaries of the AI boom .

Broadcom demonstrates tremendous sales and exceptional growth. Its business has boomed from about $35 billion in sales in early 2024 to nearly $90 billion over the past twelve months.

This is partly due to increased demand and partly to the successful acquisition of VMware, which integrates well with Broadcom's overall business.

Broadcom helps companies like Alphabet create integrated circuits for specific applications, and is an alternative to buying products directly from Nvidia or AMD.

In this respect, both are witnessing significant improvement , with Broadcom 's operating profit margin rising to 48.6%. This represents an increase from about 5% in 2017. However, Broadcom's growth comes more from its semiconductor business , which generates lower profit margins than its software business.

However, its profit margins in that sector are sufficient to maintain the company’s overall operating profit margin at or above its current levels.

Fortunately, Broadcom and Marvel operate on a relatively asset-light business model. They outsource most of their manufacturing processes. Broadcom's return on invested capital was an impressive 25.75% recently.

This is more than double the company's weighted average cost of capital.

So far, what we have looked at in terms of performance, revenue, operating profit margins, and return on invested capital, all points very much in Broadcom’s favor . Therefore, it is surprising to me that Broadcom is being sold at a lower valuation, but I understand why.

Marvell shares are trading at a forward price-to-earnings ratio of 39. This is more than double Broadcom's valuation of 18 according to the same metric. You mentioned that Marvel's market capitalization is less than $300 billion, while Broadcom's exceeds $1.6 trillion.

Therefore, it is understandable that investors see less growth potential with Broadcom compared to what they see with Marvell.

Looking at it this way, I arrive at a similar conclusion with Broadcom, which is that it appears to be undervalued. I calculated the fair value at 523. The current market price is 353.

Therefore, I calculated an upside of approximately 48% over the next 12 to 18 months for Broadcom.

Comparing Marvell and Broadcom, Broadcom has historically offered better business prospects , but looking ahead, Marvell offers better upswing potential.

However, given the differences in ratings, I prefer Broadcom over Marvel. This is exactly the option I made for my investment portfolio. I own shares in Broadcom.