Jim Cramer flags Broadcom as undervalued amid tech sector pullback

Jim Cramer has described Broadcom Inc. as a potential bargain for long-term investors, suggesting the stock may be "too cheap to ignore" following a broader decline in the technology sector. Speaking on the September 14 episode of Mad Money, Cramer noted that while the artificial intelligence complex has faced headwinds, Broadcom remains central to the ecosystem due to its role in providing custom accelerators and high-speed networking solutions.

The pressure on the share price stems from a mixed market reaction to the company’s recent earnings. Although Broadcom reported strong results at the beginning of September, investors viewed its guidance for the current quarter as merely in line with expectations, leading to a sharp sell-off. Cramer observed that the stock had fallen more than 10 per cent over the past month, sitting roughly 150 points below its June high.

Despite the near-term volatility, Broadcom’s fundamental performance remains robust. The company reported fiscal third-quarter revenue of $29.6 billion, an 85.5 per cent year-on-year increase. AI semiconductor revenue surged 221 per cent to $16.7 billion, accounting for approximately 56 per cent of total revenue. Management also raised its full-year AI revenue guidance to $58 billion, up from a previous estimate of $56 billion.

Looking ahead, Broadcom projects AI revenue of $115 billion for fiscal 2027 and $230 billion for fiscal 2028. These figures underscore the company’s deep integration into the enterprise AI ecosystem, with major hyperscale customers including Alphabet and Meta Platforms. Remaining performance obligations climbed to $179.2 billion, providing significant visibility into future contracted revenue.

The post-earnings pullback has compressed Broadcom’s forward earnings multiple to 18.1 times, a level Cramer considers attractive for those willing to look past short-term guidance jitters. Institutional interest remains substantial, with 170 hedge funds holding a stake in the company as of the most recent data, a slight decrease from 173 in the prior quarter. Fisher Asset Management was the most prominent hedge fund holder, with 15.1 million shares in the second quarter.

Market sentiment remains cautious regarding the cyclicality of the chip sector and shifting capital spending plans among major tech giants. However, with short interest standing at just 1.08 per cent of the float as of August 31, positioning suggests limited bearish conviction. For long-term believers, the combination of a compressed multiple and massive multi-year tailwinds may present a compelling opportunity in a proven market leader.