Name: AMD vs Broadcom (AVGO): Why I’m ALL IN on AMD Stock!
Uploaded: 2024-12-17T02:29:12.000Z
Duration: 16 min 7 s
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My name is Amos and welcome back to the Dividend Compounder Show.

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So right now we're going to be looking at Broadcom.

In one single month, they are up by 36%, just shy of it.

And I want to tell you that I'm a special type of stupid.

That used to be an investor of Broadcom, but I sold after getting a 100% rate of return.

And when I made that transaction, it was in the beginning of the pandemic, somewhere like right here, I bought it for about like $26 a share prior to the stock split, and then I sold it at around like right there.

Little did I know how much further it would go up, but Hey, they say profit is profit and you're right, I should be happy that I walked away in the green.

However, on the other hand, if you are currently bag holding advanced micro devices, AKA AMD, who is currently negative 8% year to date, then your butthole is probably sweaty as it's flirting with a new 52 week low.

I think the lowest was $121 right now they're $126.

And you're wondering, is the stock going to drop even further?

And if it helps you to sleep at night, let me tell you a little something about myself.

I'm a value investor that just bought into AMD because I think that it's undervalued.

So if a Warren Buffett mindset of a guy likes AMD, you're probably in good company, unless of course, investing into AMD is like signing up for money destroyer as they say, but Hey, in this video, I'm going to present my case as to why I'm choosing to buy AMD and not shares of Broadcom.

Ticker symbol AVGO, unless you're delusional, like the kind of guy that walks around telling everyone that they're six foot when deep down inside on a good day, you're really five foot seven, I think it would just all agree that Broadcom is an amazing company because check this out, their adjusted stock price, total return, because performance matters in a one single year, you would have gotten back 109%.

If we zoom out to five years, then the total return is 700%.

And if we go back even further for 10 years, then the total return for Broadcom is 2,800%.

The funny thing is Broadcom was always known as a wireless chips company that possessed a ton of patents and designs for mobile devices.

They're kind of like Qualcomm back in the day.

And when I say back in the day, I'm talking like three to four years ago.

And when they did that, they were a solid company with reliable operations, and they had one of the best dividend profiles out there.

And as we saw their stock performs pretty well, but ever since Broadcom made this pivot into AI and data centers, their growth story has taken three steroid syringes into their left butt cheek because check this out.

They recently posted their earnings and it was nothing short of crazy.

Their revenue grew by 51% year over year of which AI revenue grew 220% year over year.

So they posted $14 billion in just three months.

No, we're not talking about Apple or Google or Tesla.

We're talking about Broadcom and they also hiked their dividend by 11% year over year.

So for you dividend investors out there, they got that covered and some analysts are even predicting and casting a forecast that Broadcom's AI chips are going to see revenue growth of 40% year over year until 2029, that's pretty wild.

So the investing thesis for Broadcom, super bullish.

And as a result, right after their earnings, the stock price has taken a flight to the moon.

And if you don't get it by now, wall street is absolutely bullish on semiconductor companies that are in the business of AI.

Other categories of semiconductors, maybe not as much with Intel's unreliable foundry progress, right?

They're trying to make that pivot from being a CPU guy to now saying, Hey, we'll make your chips.

And on a side note, Intel is taking this all or nothing gamble of a risk.

I don't think is going to work out for them because they don't really have the blueprint to do what TSM is doing.

They're trying to pivot into an entirely different new category.

All that to say the intellectual property of AI chips and the designing of it is seen as more bullish than the ones who are trying to physically make those chips.

And that's why when we consider TSM, they have an economic mode of production and operations and supply chain that Intel just cannot emulate.

They can try, but they're going to burn billions of dollars trying to do what TSM is able to do.

But anyways, the argument that I'm trying to make is that the ones that are designing AI chips are making more money than the ones that are making them.

Case in point, look at Nvidia year to date, they're up by 178%.

And before you think the market is being irrational with Broadcom and overpricing it.

Dude, their finances fundamentals and balance sheet is so amazing.

First off, we're going to be looking at their income statement.

When we take a look at their revenue, what investors refer to as a top line, look at the growth of it from the pandemic of 2020 onwards.

This past year, they posted $51 billion, which means in the span of four years, they have doubled their revenue.

However, with that said, when we take a look at their balance sheet right now, they have $9.3 billion of cash and cash equivalents on hand.

However, when we look at their debt picture, it looks kind of ugly.

As we scroll down right here, the total debt right now is $67.5 billion a debt.

And that is a red flag in my opinion, which means when you look at their net cash to debt ratio, they are negative $58 billion of cash, meaning they have a lot more debt than cash on hand.

However, when we look at their cashflow statement and the free cash flow, it is So it's kind of like they throw you with something ugly and then they give you something pretty.

It's like when you're dating someone who is really skilled with their makeup, they're pretty when they're dolled up, but as soon as everything comes off, it's someone entirely new.

And that's what we're seeing with Broadcom.

Their debt picture looks ugly, but their free cashflow situation.

In 2020, they posted $11.5 billion of free cashflow.

And then year over year, it grew by 15% and then it grew by 22%, uh, 8%, 10%.

And now for the trailing 12 months, $19.4 billion of free cashflow.

So all in all, I would say their cash situation kind of overrides their high debt, because when it comes down to it, if they really need to, they can spend a majority or a bulk of their cash to pay off their debt in three to four years, if they really had to do that.

But I don't think they're going to do it because they're going to be investing that cash instead into R and D into recruiting the best engineers and scientists and coders around the world and to sustain their dividend, which as of right now is a 1% dividend yield, meaning for each share of Broadcom that you own, you get $2 and 36 cents a year in dividends, a payout ratio of 44%, which means it's healthy, sustainable, and they can increase it even further.

And for the past five years, they have been growing this number by 14% year over year, however, as of right now, they only grew it by 11%.

So after taking into consideration Broadcom's financial situation and fundamentals, if you disagree with me, it makes perfect sense.

They pay a dividend, they have wide margins, and some analysts are even arguing that Broadcom is now number two in the AI race and will give Nvidia a run for their money.

There's a lot to like about this company.

However, on the other hand, when we take a look at AMD, AMD was always known as a PC chips company and was seen as the little brother that's a little ugly to Intel.

However, they're making the same pivot to making chips for all things related to AI.

Unfortunately for AMD, the market is not as bullish towards AMD because of their message and communication, but also of what they're doing.

Their market share in the data center, GPU and CPU, not looking too good to Nvidia.

However, I made a deep dive video about AMD a couple of days ago.

So watch that one for the full picture and why I would buy into AMD knowing that they're second to Nvidia.

But keeping that in mind, yes, year to date or the one-year performance, trashed, right?

Negative 8%, meaning your money would have gone down if you would have invested into AMD in December of last year, and if we zoom out to, I don't know, three or five, I guess we'll go with five to five years out.

Then the total performance for AMD stock is 200%.

And if we zoom out even further, bird's eye view, is the company doing okay?

10 years, then your money would have grown by 5,000%.

And that's because Lisa Su, the current CEO who took over in 2014, literally took this company that was trading for about what, $2 a share, and now it's currently trading for about $126 a share, so historically and in their DNA, they have been a hyper growth company that is currently going through the smallest of speed bumps and bearish sentiment, which is unusual for a company that has been seeing gains such as 5,000% in 10 years.

But I think this is also true when it comes to other things in life, what is hot and what is in right now usually goes through cycles and waves, meaning AMD was the hot girl two to three years ago, but as of right now, Broadcom is the one that is walking around with the biggest and juiciest butt chin and pointy elbows, meaning Broadcom as of right now, they're currently flirting with two to three hyperscalers without a concrete contract, but Wall Street is eating it up.

Broadcom was like, Hey guys, we're talking to these people and we think it's going to go well in the future.

So Wall Street is baking in bullish future expectations that those contracts are going to go in Broadcom's way and that their revenue is going to multiply beyond belief because they're working with hyperscalers.

If you don't know what a hyperscaler is, what you see on your screen right now on the right side, think of it as a cloud-based data center customer.

When we think about like Amazon's web services, Microsoft's Azure, Google's cloud, people that are building out data centers right now in order to meet the demand of their cloud network, if that makes sense.

And word on the street is that OpenAI and Apple are the two hyperscalers that are looking to use Broadcom as a supplier of AI chips.

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AMD vs Broadcom (AVGO): Why I’m ALL IN on AMD Stock!

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