Seems like everything went right in 2024.

The S&P 500 spent the year making new all time highs soaring nearly 30% on the year.

After its major halving event (cutting rewards to miners) Bitcoin powered into the end of the year crashing through the $100,000 level. 

And in yet another Festivus feat of strength, the Nasdaq Composite (2,500 shares strong) blasted through the 20,000 level. 

In truth, much of this year’s performance in the stock market has been the result of the mega-cap sector: Those trillion dollar-plus market cap companies heavily involved in the AI boom. If you factor out their weighting in the S&P 500, the index’s performance on the year is cut by about half. (It’s only up about 15% which is more in line with the small-cap Russell 2000 has done.)

But alternate measures aside, the AI sector is booming and appears it will keep booming for the foreseeable future.

This week’s stock spotlight is on one of those drivers.

The Boom in Broadcom

Broadcom Inc. (AVGO) is one of the tech stocks that’s muscling its way into the Mag-level club having just eclipsed $1 trillion in market cap.

Broadcom is involved in both the semiconductor industry as well as infrastructure software — namely software in the cloud computing biz.

Last week, AVGO released its fourth quarter earnings. CNBC reported:

Broadcom reported better-than-expected fourth-quarter earnings on Thursday and said artificial intelligence revenue for the year more than tripled.

AI revenue had reached $6 billion from less than $2 billion at the beginning of the year.

Add to that the fact that revenue from its chips segment also grew 12% year-over-year and you’ve got a damn hot stock. 

Broadcom Inc. (AVGO) YTD

The market literally stampeded on board. And this is no doubt excellent news for the company. 

But there are two things investors should take note of.

First, you can see a similar gap higher back during its June earnings release. Prices followed through for a couple sessions, but then consolidated over 20% lower, testing the stock’s 200-day moving average. 

The other thing you’d want to look at is the company’s valuation at current levels. At these post-gap prices, shares are trading at a P/E of 195. (That means you’re paying $195 for every $1 of earnings.)

A lot of tech companies have gotten pretty heady in the past. But things have settled to more realistic valuations. META’s P/E is only around 29. MSFT is only 36. Even the big dog in the AI pack — NVDA — is only sporting a P/E of 53.

Broadcom has moved into some lofty valuations.

And while the future may be bright for this newly minted $1 trillion behemoth, investors might do well to exercise some patience when looking at it.