Semiconductor company Broadcom (NASDAQ:AVGO) made news this week when it announced a 10-for-one stock split. Shares of Broadcom stock immediately surged on the news, rising some 12% on Thursday to roughly $1,680 per share. In actual fact, the value temporarily surpassed $1,700 per share throughout the day on Thursday.
Nonetheless, the stock split was not the one catalyst, as Broadcom has been one among the top-performing stocks available on the market lately, fueled by its artificial-intelligence chips which are used to attach networks.
Over the past five years, Broadcom has posted a median annualized return of 35%. Nonetheless, it has gone into overdrive lately, rising 104% in 2023 and 55% yr to this point (YTD) in 2024.
When the corporate’s stock split is implemented on July 15, its share price will drop from wherever it’s on that date to one-tenth of that price. For instance, if the stock split were conducted today, the shares would drop from where they are actually at roughly $1,700 to around $170 per share.
The stock split is being done to make Broadcom stock more accessible to investors, particularly those that might need been priced out of it. Nonetheless, the shares haven’t at all times been this high.
In actual fact, just 10 years ago, Broadcom stock was trading at around $71 per share on June 13, 2014. Let’s do the maths to see how much you’d have now in the event you had invested $5,000 in Broadcom 10 years ago.
Photo: TradingView
From $71 to $1,700
It must be noted that going back 10 years includes the 2 years before Avago Technologies acquired Broadcom Corp., in February 2016.
At that time, the acquiring firm, Avago, was trading on the Nasdaq under the ticker “AVGO.” Nonetheless, the merged company decided to make use of the Broadcom name and the “Avago “AVGO” ticker.
Each corporations had been top-10 semiconductor firms before the merger. Afterwards, the combined company became a top-four chipmaker with annual revenue of $15 billion and a market cap of $77 billion.
For the sake of this exercise, let’s return to June 13, 2014, two years before Avago bought Broadcom. AVGO stock was trading at $71 per share. As such, in the event you had invested $5,000 in the long run Broadcom on that date, you’d be pretty pleased with the outcomes without delay.
Turning $5K into $145K
A $5,000 investment in the corporate that will turn into Broadcom back then would have netted you roughly 70 shares of the stock at $71 apiece. Over the subsequent 10 years, Broadcom would turn into what’s often known as a 20-bagger, meaning it increased by 20 times — almost 25, in truth.
On a cumulative basis, you’d have racked up a return of nearly 2,300% over that point. On an annualized basis, you’d have a median annual return of 37%. Counting dividends, the entire annualized return can be 40%.
By comparison, the S&P 500 has had a median annualized return of 12.9% over that very same period, including dividends reinvested.
Thus, investing $5,000 to purchase 70 shares in 2014 would make your investment value about $145,000 without delay, based on the 40% average annualized return. In case you had contributed a further $50 per 30 days to that stock over the past 10 years, you’d have roughly $194,000 without delay.
A recent opportunity
With the stock split coming on July 15, Broadcom’s recent price will make the entry price rather more reasonable. The post-split share price shall be based on what the closing price is on July 11.
Thus, assuming there are not any major changes in the value between now and July 11, it must be somewhere between $165 and $175 per share. That might roughly be where it was eight years ago, when Avago and Broadcom merged to form the corporate we see today.
Considering that Broadcom is now among the best AI stocks available on the market and one among the ten largest U.S. corporations with a market cap of roughly $780 billion, investors will probably want to consider being a part of Broadcom’s next generation of growth.