Motley Fool: Broadcom: Chips and More

The market for semiconductors is red-hot, as investment continues to pour into data centers for artificial intelligence (AI). Research company IDTechEx expects the market for AI chips to exceed $400 billion by 2030. While graphics processing unit (GPU) leader Nvidia is a popular pick, investors should also consider Broadcom (Nasdaq: AVGO).

Nvidia’s chips are the most powerful in the world, but they’re also power-hungry and expensive. There is growing demand for more affordable chips that aren’t as powerful but are well-suited to specific tasks, and that’s where Broadcom comes in.

Broadcom expects its AI revenue to grow from $20 billion this year to $120 billion by 2030. For perspective, its total revenue over the last 12 months was $60 billion. Beyond chips, Broadcom also offers advanced networking solutions that allow chips to handle massive data flow for AI training workloads. While total revenue grew 22% year over year last quarter, AI revenue specifically grew 63%.

The company’s main risks include reliance on a handful of massive customers and expectations that may already be running too hot. But it has a long history of operating excellence. Broadcom appears well-positioned for continued growth. (The Motley Fool recommends Broadcom.)

My dumbest investment

My most regrettable financial move was cosigning a mortgage with someone. – R.P., online

The Fool responds: Cosigning a loan can be a generous and helpful thing to do for someone. It’s generally done when an applicant’s income or credit score is too low for them to borrow the money they need. If someone with good credit cosigns the loan, it will often be approved. There are pros and cons to this. On the plus side, you’re helping someone out – perhaps your child. And if payments are made on time, your own credit score may improve.

On the other hand, if payments are late or missed, you’ll likely be held liable, and your credit score can take a big hit. Your relationship with the borrower may become uncomfortable. In a worst-case scenario, you might have to repay the loan yourself – which is especially onerous if it’s a large mortgage. And if you want to remove yourself from the loan, it can be difficult. Also, your own future borrowing may be limited, as this cosigned debt will count as your own.

Many of us have an innate desire to help people we care about, but tread carefully when it comes to cosigning loans – and especially mortgages.

Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.

Ask the Fool

Q. What’s a company’s “market cap”? – N.W., Pleasanton, California

A. The term is short for “market capitalization,” reflecting how the company is valued in the stock market. To calculate it, multiply the current stock price by the number of shares outstanding. (Many online stock data providers list companies’ market caps.)

Imagine, for example, that Antisocial Media, Inc. (ticker: SCRAMM) has 200 million shares outstanding and a stock price near $20 per share. Multiply 200 million by $20 and you’ll get a market cap of $4 billion – its current market value. If a company wanted to buy all of Antisocial Media, it would probably have to pay at least $4 billion (and likely more). Acquisitions often happen above market prices – typically to give the target company’s shareholders enough financial incentive to approve the deal and to deter rivals from starting a bidding war.

While ranges vary, here’s how S&P Dow Jones Indices categorizes companies by market cap: Small-cap companies have market caps ranging from $1.2 billion to $8 billion; mid-caps are $8 billion to $22.7 billion; large-cap companies are worth $22.7 billion or more.

Note that market caps will fluctuate along with changes in both stock prices and the number of shares outstanding.

Q. What’s a sector? – J.B., South Burlington, Vermont

A: The word is often used for a large portion of the economy, such as the energy, financial or technology sectors. The industrials sector, for example, includes the airline and construction industries, while the health care sector includes biotechnology companies, care facilities and medical-device makers.

“Sector” might also refer to the public or private sectors, meaning, respectively, government entities (such as courts or public schools) and nongovernment entities (such as private or publicly owned companies).