Why Broadcom Stock Rallied Today
Key Points
Broadcom stock rallied after Palantir delivered a beat-and-raise quarter.
This helped to quell fears that an AI-related slowdown is imminent.
As a crucial player in AI, Broadcom will benefit from the continuing adoption of the technology.
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Shares of Broadcom (NASDAQ: AVGO) climbed on Tuesday, gaining as much as 6.2%. As of 12:51 p.m. ET, the stock was still up 6.1%.
The catalyst that sent the semiconductor specialist higher was impressive quarterly results from another crucial player in artificial intelligence (AI) -- Palantir Technologies (NASDAQ: PLTR).
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Demand for AI is robust
Palantir reported its most impressive quarterly financial report to date, and investors believe this bodes well for Broadcom's ongoing win streak.
In the second quarter, Palantir generated revenue of $1.94 billion, up 93% year over year, driving adjusted earnings per share (EPS) to $0.41, up 156%.
For context, analysts' consensus estimates called for revenue of $1.81 billion and adjusted EPS of $0.35, so Palantir surpassed both estimates by a wide margin.
The results for the company's U.S. commercial segment led the charge, as revenue surged 149% to $764 million, driven by unrelenting demand for its Artificial Intelligence Platform (AIP). Results for the U.S. government segment were also robust, as revenue grew 90% to $809 million.
So, what does this have to do with Broadcom?
Broadcom isn't scheduled to report its third-quarter results until Sept. 2, but investors are using Palantir as a proxy for ongoing AI demand. Broadcom is guiding for Q3 revenue to rise 84% to $29.4 billion and adjusted EBITDA to increase 87% to $20 billion -- impressive results by any measure.
Taken together, the evidence highlights the ongoing strong demand for AI. Finally, at 21 times next year's expected earnings, Broadcom is a quintessential picks-and-shovels play for those wanting to invest in the AI boom.
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Danny Vena, CPA has positions in Broadcom and Palantir Technologies. The Motley Fool has positions in and recommends Broadcom and Palantir Technologies. The Motley Fool has a disclosure policy.
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