Broadcom (AVGO) is a Wall Street darling. That might not last much longer.
The $71 billion smartphone chip maker has masked a downturn in business by going on a multi-billion dollar spending spree. The company merged with rival Avago, in 2015, in a deal worth $37 billion. It recently purchased Brocade for $5.5 billion. Management did a good job selling these deals to investors.
The stock is up +30% this year.
Hedgeye Technology analyst Ami Joseph think the outlook for Broadcom doesn’t look good. In the video excerpt above, Joseph had this to say about Broadcom:
“What we don’t like is this is a cyclical asset that is modeled in secular terms with an M&A machine that obfuscates underlying growth. It’s a machine in which, you appear to exhibit control over your own destiny, but we think creates a great deal of illusory risk. This is the reason why the sentiment around the stock is so one-sided, in terms of sell-side ratings and short interest in the stock.”
But the company can’t mask the underlying weakness of its cyclical business forever, Joseph says. “As we roll forward organically I think you’re going to see some pressure on the top-line which is obviously going to change everyone’s view,” he says.
Watch the video above to see why we don’t like the stock.