I wanted to talk about broadcom they announced their earnings yesterday and the stock price is sold off it's Friday morning about an hour and 15 minutes before the Market opens and the stock is down 7% what was in the earnings that caused investors to sell well it's been my observation that broadcom stock has been very high fed by the AI hype that the data center is going to explode with new revenues and make semiconductor companies very very valuable that's certainly been the case for NVIDIA as well as other companies that have been benefiting from the data center buildout but I'll show you in the information that broadcom provided that broadcom's growth is actually quite slow it's not booming it's just growing like you would expect them to grow whether you put an AI label or not the results were just lackluster they were just okay and I think that's why stock pric is really uh down this morning so I'll go through and update my analysis on broadcom it is a company that I've been an investor in for a long time or but more recently I started to short this stock because I think that this stock price is just much too high for the value of this company now broadcom's a great company but the company is not the stock price and the stock price is not the company this video is really focused on the stock price I'm an investor and I invest to make money I don't invest just because I want to own a part of a company just so that I could say that no I own a company so that it could go up in value and I make money in the case of broadcom I think the value is too high and I think the stock price is going to drop over time I think my short position is going to make money so I'll go over my short position on broadcom share with you where I'm at what my plan is to get out of the short position I'm not going to stay in it forever and what the guard rails are I put on that position so let's get into analyzing broadcom so the stock price has done really well over the last five years it's up 423 per which is phenomenal great job broadcom I've owned broadcom for a long time and sold right around the end of 2023 at a really nice gain I don't regret doing that because I again think that the stock price is too high compared to the actual value of broadcom but the stock price continued to rally and over the past year it's up uh well over 38% if we look at that the monthly it hasn't fared very well it's down quite a bit it's down 8.88% that doesn't include the more than 7% down this morning so it's going to be down about 15% uh shortly after the Market opens that's clearly incorrection territory and I sense that it's going to continue to fall I'll share more my analysis with you that leads me to make that statement broadcom has a market cap of $711 billion which which is a huge market cap for a Semiconductor Company they're a $ 46 billion company and if you look at some of their peers like Qualcomm they're almost the same Revenue but their market cap is much lower you look at PE has a very high PE of 139 it's a strong buy according to analyst but it's only discounted by 17% I don't know how you could say strong but it's only discounted by 17% it should be it's a strong buy and it's discounted by 70% but uh that's interesting overall you know as mentioned the stock is really up which is interesting but more recently it's really begun to drop and it's seen a lot of volatility the whole semiconductor Space is really being pressured now what I'll show is that the revenue has really if you look at it to the naked eye the revenue looks great they have really high growth on the revenue but the thing that I want to call attention to is they acquired a company BMW and that's really led to the big percentage growth it's not organic growth and in my book organic growth is the best type of growth that shows that customers really like your product they are buying more of it and new customers are being attracted by your product or service and that is also real positive when you're AC acire company it might be a real good thing but it's not organic growth and in fact only they had only 4% organic growth if you take out the VMware business and that was reported by broadcom themselves in the latest earnings so it's very good that they provided that so we have a clear picture of how the company's growing so really I view broadcom as a 4% growing company which is a very different reflection on the company versus 32% when we look at cash flow it's a very good cash flow generating company but my comments that I mentioned on that acquisition uh continue to linger here nonetheless the reason I've been a broadcom investor in the past is their cash flows have been really good and they are very attractive but they only provide a certain valuation which I'll show later and compare it to its current stock price the balance sheets gotten better they were above three times iida they've did done a nice job of paying off debt and bringing down the debt level so it's below three times iida good job on that broadcom now I believe broadcom is being priced at a premium of 43% if I look at their stock price and that is the stock price that I'm seeing before the Market opens that is the lowered stock price the Market's pricing and compare it to the value that I see in their cash flows and the value I see out of their earnings per share cash flows are very very good and I I think I've created a fairly accurate and optimistic forecast cash flows for the first four years and growing those cash flows by 6% and then terminal value I grow by 4% this is a cyclical industry and this is an optimistic forecast but I want to be optimistic since I'm shorting the stock I don't want to make the numbers look U better for a short seller position I want it to look very optimistic just to make sure that I'm not shorting a stock that's going to come back and cause me a lot of losses the discount rate's 9% and you know what let's change that on the Fly interest rates are dropping I'm GNA change it to 8.5 broadcom's done a nice job of improving their balance sheet and I think they deserve a lower discount rate the intrinsic value all those cash flows is $432 billion and the cash on the balance sheets a little under 10 billion debts a little under 7 70 billion so the equity value of the company is $372 billion dollar but the market cap is much higher so when I compare the current stock price to the value per share that I calculate based on cash flows the stock is being priced at a premium of 43% earnings per share is similar now analysts are going to use a very high PE that's fine they can do that but when I invest my money I'd make the decision on the PE and I think an 18 is reasonable for a Semiconductor Company having said that I'm going to grow the earnings per share quite aggressively and I get to a premium being priced into the stock of 29% so the combination is a 38% premium on the price of Brom stock which is interesting and information that I'll use as I update my short position I I began to short shares of broadcom over the last few months and overall I am at an unrealized gain of 12% on that short position and you likely know when you short a stock you're actually borrowing shares and selling them and I did so and I borrowed shares and sold them and the proceeds from um that that sale was $ 5,239 now I owe whoever lent me those shares I need to return those shares now for if I were to buy them today they' cost me $466 so I would stand to make a gain of $573 if I closed out the short position today now I think this is going to continue to drop I think the semiconductor space is certainly on its way down and I'm gonna really think about selling uh excuse me buying shares and closing out this short position if it reaches 20% and at that point I think um I'll be satisfied with the return again this is achieved over the course of a couple months and more importantly I was seeing that the semiconductor space was just overpriced and it seemed obvious to me I also have been working in technology for a long time and I've seen these paradigms of Technology come get established and get working AI is really interesting it's just going to take a lot longer than the media Outlets would lead you to believe it's not going to happen overnight it's not going to happen over a couple of years it's going to happen over a decade and the data Center I think we've proven that if in fact the data center is growing by Leaps and Bounds broadcom Revenue organically should be growing maybe 25% 50% a year instead it's just growing 4% organically so there's no boom there I don't see it so having said that having a short position you know put Capital out there make this a re real you know investment make this a real thought and a real position I'm taking to confirm my thesis or frankly if this turns around and I lose money maybe I get to learn a lesson out of this uh investment let's see how things work out broadcom is a terrific business and I've been an investor in the company because I think that they have certain intellectual property that's really desirable by the market they are a fabulous semiconductor so their real value is providing the engineering the creativity create the right semiconductors for the market so I think the company's great I just think that the stock price is much too high so um I separate the two because I really do believe broadcom's a great company but I think the stock price is a different matter so I put them in my desirability quadrant put them mostly in the green I think it's a really good company very profitable generates cash flow and at some point maybe if the broadcom stock really goes down in price I might start buying the stock again versus shorting it but for the time being I'm going to keep my short position open I don't think I'm going to make it any larger I think we're on our way to correct uh you know stock prices in the semiconductor space I'm just going to wait to probably close out the short position in the next couple months we'll see how quickly we get there and we'll go from there so that's my video on broadcom I hope you found it interesting and I really appreciate you watching keep in mind I'm just an individual investor just sharing my experience on YouTube I'm not recommending you short broadcom I'm not recommending you buy hold or sell broadcom please make your investment decisions independent of this video thanks again for watching