Your Portfolio in Brief
Founded in 1961, Broadcom specializes in designing semiconductors and software solutions for the telecommunications, data center, automotive, and smartphone sectors. Present in more than 30 countries, the company employs over 20,000 people.
Key Highlights
• Accelerated Growth from AI: Broadcom projected a 65% growth for its AI-related products in the fiscal first quarter, far exceeding the overall 10% growth for its semiconductors.
• Impressive Financial Performance: Broadcom reported better-than-expected financial results for the fourth quarter:
o Adjusted Earnings per Share: $1.42 versus $1.38 expected.
o Revenue: $14.05 billion, slightly below expectations but up 51% year-over-year.
o Annual AI Revenue: Growth of 220%, reaching $12.2 billion, driven by strong demand for generative AI infrastructure.
o Semiconductor Division: Increased 12%, with revenue of $8.23 billion.
o Software Division: Revenue reached $5.82 billion, significantly boosted by the VMware acquisition.
• Ambitious Outlook: The company forecasts revenue of $14.6 billion for the fiscal first quarter of 2025, in line with analyst expectations.
• AI Opportunities: Broadcom is currently developing custom AI chips with three major cloud computing companies, targeting the deployment of one million chips in interconnected clusters by 2027. The addressable market for AI components is estimated to be between $60 billion and $90 billion by 2027.
• Dividend Increase: The company announced an 11% increase in its quarterly dividend to $0.59 per share for fiscal year 2025.
Why This is a Stock to Watch
1. Growing Exposure to AI: Like Nvidia, Broadcom is benefiting from strong demand for its AI-focused chips, with AI revenues growing 220% this year.
2. Strategic Acquisition: The $69 billion acquisition of VMware has strengthened its software division, which now rivals its semiconductor operations in scale.
3. Solid Partnerships: The company has secured two new hyperscaler clients, enhancing its role in data centres.
4. Product Diversity: Beyond AI, Broadcom remains a key supplier for sectors like automotive, smartphones (notably for Apple), and networking equipment.
Conclusion: A Stock Performance That Validates Our Choice
Broadcom, often called "the other giant of AI chips," stands out as a key player in the technology ecosystem. With ambitious prospects and exceptional performance, the stock has already surged nearly 70% in 2024 and continues to captivate Wall Street. With a market capitalization exceeding $900 billion, Broadcom is on the verge of joining the prestigious club of companies valued at over $1 trillion.
As the second-largest AI chipmaker behind Nvidia, Broadcom is fully capitalizing on the frenzy of investments in artificial intelligence, a booming sector. These results confirm the soundness of our investment strategy and reinforce our conviction that this stock will continue to deliver value for our clients over the long term.
Markets in Brief
Monday
• Dow: The index fell 0.54%, closing at 44,401.93 points.
• S&P 500: Down 0.61%, ending at 6,052.85 points.
• NASDAQ: Lost 0.62%, settling at 19,736.69 points.
• S&P/TSX (Canada): Dropped 66.38 points (0.26%), closing at 25,625.42 points.
The session was marked by pressure on tech stocks, influenced by economic developments in China. The Chinese central bank announced gold purchases and monetary policy easing, which supported commodity prices such as gold, rising to $USD 2,685.80 per ounce, and oil, climbing to $USD 68.37 per barrel. However, these positive measures were offset by the announcement of an antitrust investigation into Nvidia by a Chinese regulator, causing its stock to drop 2.6%, now at $USD 138.81. Nvidia, a key player in the artificial intelligence sector, which has surged over 180% in 2024, is under significant pressure.
Meanwhile, Advanced Micro Devices (AMD) plunged 5.6%, following a downgrade by Bank of America, citing Nvidia’s dominance in the AI market. Tech giants like Meta Platforms and Netflix also suffered, recording declines of 1.8% and 2.1%, respectively, as the overall tech sell-off reflected reduced risk appetite. Bitcoin, which hit a historic high of $USD 100,000 last week, also retreated, confirming investors shift away from more volatile assets.
These movements come after record highs reached on Friday by the S&P 500 and NASDAQ, which gained 1% and 3.3% for the week, respectively, while the Dow Jones fell 0.6%, highlighting divergence in index performances.
Stocks in Brief
• Meta Platforms (-1.8%) and Netflix (-2.1%): Sharp declines for these tech giants amid a sector-wide sell-off.
• CI Financial (+30.03%): The stock soared on strong financial results.
• Electrovaya (+13.98%): Boosted by promising new contracts.
• Torex Gold Resources (-8.14%): Significant drop due to disappointing quarterly results.
• Oil: Barrel price rose by $USD 1.17, closing at $USD 68.37.
• Gold: Ounce price jumped $USD 26.20, reaching $USD 2,685.80.
• Canadian dollar: Stable, trading at $USD 0.7077.
Tuesday
• Dow: The index fell 0.35%, closing at 44,247.83 points.
• S&P 500: Down 0.3%, ending at 6,034.91 points.
• NASDAQ: Declined 0.25%, settling at 19,687.24 points.
• S&P/TSX (Canada): Dropped more sharply by 121.09 points (0.47%), closing at 25,504.33 points.
Alphabet Shines with Quantum Computing Breakthrough Alphabet, Google’s parent company, rose 5.6% after unveiling a significant breakthrough in quantum computing with its new "Willow" processor. Capable of solving calculations in minutes that would take supercomputers billions of years, this advancement places Alphabet at the forefront of technology, driving its annual gains to over 32%.
Oracle Dragged Down by Disappointing Results Oracle’s stock dropped 6.7%, closing at $USD 112.45, following the release of quarterly results that fell short of analysts’ expectations. Despite an impressive 68% gain this year, weak results raised concerns about the sector’s high valuation.
Nvidia and Tech Sector Under Pressure Nvidia continued its decline, falling 2%, extending losses linked to the Chinese antitrust investigation. This weighed on the tech sector, though Meta Platforms saw a slight recovery of 1%.
Stocks in Brief
• Alaska Airlines (+13.16%): Optimism surrounding its financial outlook and new international routes.
• Walgreens Boots Alliance (+17.74%): Speculation about a buyout by Sycamore Partners.
• Gold: Ounce price surged $USD 32.60, reaching $USD 2,718.40.
• Oil: Slight increase of $USD 0.12, bringing the barrel to $USD 68.59.
• Natural Gas: Declined by $USD 0.02, to $USD 3.16 per million BTUs.
Wednesday
• NASDAQ: Tech-heavy index surged 1.49%, hitting a new high of 14,320.25 points.
• S&P 500: Broad market index gained 0.78%, closing at 4,515.60 points.
• Dow: Finished nearly flat, down 0.02%, at 36,112.20 points.
• S&P/TSX (Canada): Gained 0.60%, closing at 25,657.70 points, supported by a rate cut by the Bank of Canada.
Alphabet Hits All-Time High
Alphabet (GOOG), Google’s parent company, saw its shares climb +5.46%, reaching a new all-time high. This rise is attributed to the announcement of the next-generation artificial intelligence system, Gemini 2.0, designed for autonomous agents acting on behalf of users.
Tesla Soars Following Trump’s Election
Tesla (TSLA) continues to impress investors, with an exceptional 69% rise since Donald Trump’s election last month. The perceived strategic influence of CEO Elon Musk on the new administration is bolstering market confidence in the company’s prospects. Tesla closed Wednesday at $USD 424.77, up +5.93%.
Pressure on Traditional Sectors
General Motors (GM) fell 1.33% after announcing the closure of its robotaxi business to refocus on advanced driver-assistance systems. Macy’s (M) dropped 0.84%, impacted by lower-than-expected quarterly results.
Stocks in Brief
• Meta (META) +4.12%: Gains following improvements in augmented reality products.
• Amazon (AMZN) +3.89%: Growth attributed to strong performance in e-commerce.
• Bitcoin (BTC-USD) +7.24%: The cryptocurrency surpassed $USD 101,300 per token, marking a resurgence of interest.
• Macy’s (M) -0.84%: Negative impact from recently discovered accounting irregularities.
• Broadcom (AVGO) +6.57%: Supported by announcements of strategic partnerships with Apple.
• Crude Oil +2.48%: Closed at $USD 70.29 per barrel.
• Gold +1.41%: Reached $USD 2,756.70 per ounce.
• Canadian dollar: Increased to $USD 0.7065, from $USD 0.7059 the previous day.
Inflation in November in the U.S.: Toward Another Interest Rate Cut
Annual inflation accelerated in November to 2.7% (+0.3% for the month), according to the Bureau of Labor Statistics. Core inflation (excluding food and energy) remained stable at 3.3% year-over-year, with a monthly increase of 0.3%. Housing costs, accounting for 40% of the monthly rise, increased 0.3%, while used vehicle prices rebounded +2%, and new vehicle prices rose +0.6%.
These figures, in line with expectations, reinforce the likelihood of a 0.25% rate cut by the Federal Reserve during its meeting on December 18, bringing cumulative reductions to 1% since September. However, some Fed officials expressed concerns about slow disinflation, particularly in housing and durable goods sectors, which could slow the pace of cuts in 2024.
Bank of Canada Lowers Its Key Rate to 3.25% and Adopts a Cautious Approach T
The Bank of Canada reduced its key interest rate by 0.5%, bringing it to 3.25%, marking the fifth consecutive cut since June 2024. Although this reduction reflects a desire to support the economy, the central bank indicated it will now take a more gradual approach to future policy changes.
This decision comes amid data pointing to economic weaknesses:
• GDP Growth: Only 1% in Q3, well below forecasts.
• Unemployment Rate: Increased to 6.8% in November, its highest level since 2017.
• Slower Immigration: The federal government reduced immigration targets, potentially limiting economic growth.
These factors, combined with inflation stabilized around 2%, prompted the bank to maintain an accommodative policy while adjusting its intervention pace. Governor Tiff Macklem stated, "We have significantly reduced the policy rate, and these adjustments will take time to impact the economy. Now, we anticipate a more gradual approach if the economy evolves as expected."
The bank estimates its policy rate is now at the upper end of the neutral range (between 2.25% and 3.25%), a level where it neither stimulates nor significantly slows the economy. The next rate decision is scheduled for January 29, 2025, alongside an updated economic and inflation outlook.
In addition to domestic challenges, international uncertainties weigh on economic prospects:
• Trade Policy: The potential for new U.S. tariffs under a Trump administration stokes concerns.
• Inflation Risks: Policies like temporarily eliminating the GST on certain goods could reignite inflationary pressures.
The Bank of Canada stressed that its future decisions will depend on new economic data and updated forecasts. The next rate decision is scheduled for January 29, 2025, accompanied by revised projections for the economy and inflation.
Thursday
• Dow: The index fell 0.53%, losing 234.44 points to close at 43,914.12 points.
• NASDAQ: The tech-heavy index dropped 0.66%, falling to 19,902.84 points, slipping below the 20,000 mark.
• S&P 500: Declined 0.54%, ending at 6,051.25 points.
• S&P/TSX Composite (Canada): Fell 0.96%, losing 246.99 points, closing at 25,410.71 points.
Stronger-Than-Expected Inflation à
The Producer Price Index (PPI) report showed a 0.4% increase in November, exceeding expectations of 0.2%. Year-over-year, wholesale prices rose 3%, marking an acceleration from the previous month. This surprise inflationary pressure weighed on investor sentiment, driving the 10-year Treasury yield to 4.33%, its highest level in two weeks.
Stocks in Brief
• Warner Bros Discovery (+14.22%): Significant rise due to a strategic reorganization of its business segments.
• Adobe (-13.69%): Sharp decline after issuing conservative forward guidance.
• Nvidia (-1.41%): Continued decline despite strong demand for AI products.
• UnitedHealth (-3.33%): Impacted by internal turbulence, including the recent murder of a top executive.
• Costco (-0.63%): Slight drop ahead of its quarterly earnings report.
• Canadian Dollar (-0.24%): Down to $USD 0.7048 from $USD 0.7065 on Wednesday.
Friday
• S&P 500: Rose 0.3%, rebounding after Thursday’s losses.
• NASDAQ: Gained 0.5%, supported by a recovery in tech stocks.
• Dow: Increased by 0.2%, adding 101 points, but remained on track to end the week negatively.
Stocks in Brief
• Broadcom (+20%): Spectacular rise following impressive AI-driven earnings results.
• Micron (+3.5%) and Nvidia (+2.8%): Increased alongside Broadcom, benefiting from heightened interest in AI technologies.
• Apple (+1.1%): Continued gains on positive news about quarterly sales.
• Tesla (-0.7%): Moderate decline amid ongoing production concerns.
Conclusion
The week was marked by significant volatility, reflecting uncertainties surrounding economic outlooks and corporate earnings. Investors grappled with higher-than-expected inflation data, which weighed on market sentiment, while also anticipating a potential rate cut by the Federal Reserve next week. Meanwhile, the Canadian market faced substantial pressure, with the S&P/TSX dropping 2.3%, driven by weakness in the resource sectors.
The technology sector was at the forefront of market movements, experiencing sharp declines earlier in the week before staging a strong recovery on Friday, led by Broadcom (+20%), following impressive results tied to its AI-related revenues.
