AVGO's current price exceeds its calculated average intrinsic value; it is not a strong buy.

The first stock on Forbes' buy list is Broadcom, a chip and software giant that has become a true behemoth in the field of artificial intelligence. In the last quarter, its revenue jumped by 86%, and sales of AI chips alone exploded by 221% to reach $16.7 billion.

Management expects more in the next quarter, around $21.7 billion.

It manufactures both custom AI chips and networking equipment that connect the giant AI data centers that everyone in the country is arguing about. It has converted nearly half of its revenue into cash, and about 30% of its sales are stable software that is growing by about 30% on its own, making the whole company more balanced.

What is the argument of pessimists? Well, it relies heavily on a small handful of giant clients. Its top five customers account for 55% of sales. So, even if one of these five big customers were to cut back on AI spending or start building its own chips, it would be hit very quickly.

Its string of successes depends entirely on spending on artificial intelligence remaining very strong.

So, let's count the numbers now. Okay, here's Broadcom, folks, and that's a reminder. We have reviewed a few cases of optimists and pessimists in our program. If you click here on artificial intelligence, and here to see the optimistic and pessimistic cases, you will get three cases of each for the company at your fingertips.

So, guys, when I look at the company's price, I don't look at the share price. Market value is the price of the company. It is the number of outstanding shares multiplied by the share price.

The next thing I do is go to the value proposition of the organization. The market capitalization is $1.72 trillion. The value of the organization is $1.79 trillion. This difference is $70 billion.

Essentially, this is the debt owed by the company. You might now be thinking and saying to yourself: This is a very large amount. Okay, wait a moment. Guys, I generated nearly $40 billion in free cash flow last year.

So, it generated $40 billion in free cash flow against $70 billion in debt. This is not a big debt. I like that very much.

Next, high returns on capital that are constantly improving. A sign of quality workmanship. 17.4% annually over the past five years, and is heading towards 20%. Now, something I don't like very much.

Their profit margin is improving. You might sit there and say, "Why don't you like that?" Well, look how high it is. The average profit margin for 10 years is 29%, for 5 years 33%, and for one year 43%.

It has increased by almost 50% compared to the 10-year average. So, for me, this means it is a demand-driven phenomenon and may be temporary. If it were continuous, this rate would be much lower.

This opens the door to more competition as people see how much money they are making.

And of course, look at revenue growth. It is accelerating more and more. Revenue growth over 10 years is 23% annually, over 5 years 27.5%, and over 3 years 36%. This is a tremendous rate of revenue growth.

Now, let's take a look at the eight pillars to see what story they tell us. Okay guys, one thing I don't like is that they're reducing the shareholders' share. What this means, guys, is that they are issuing more shares.

You might sit there and say, "What's the problem with that?" Guys, this could be the silent killer of investing. Let's assume a company has 10 outstanding shares and you own one share.

You own 10% of the company. If they add two more shares, they go from 10 shares to 12 shares, but you still own one share. This means you own one out of 12 shares instead of one out of 10, and your ownership has decreased from 10% to 8.3%.

Therefore, this is a reduction of the shareholders' stake.

Everything else is good except for the 5-year price-to-earnings ratio and the 5-year free cash flow rate, which might be acceptable if the company continues to grow as it has done with high profit margins.

Guys, I've already reviewed some of the metrics and maybe you can see why I teach on YouTube. Nobody talks about these things, but they are important things that need to be understood.

I have reviewed some of the key metrics, and some of these eight pillars. If you want to speak my language, I encourage you to do something very simple, especially if you are at the beginning of your investment journey.

Click on the link below and download our completely free PDF of key metrics. This document will explain all of these key metrics, what they mean, and how to calculate them. In this way, you will become more familiar with investing and we can speak the same language as we move forward.

And a quick reminder, in a few minutes, I will outline the price I am willing to pay for the stock based on my own assumptions.

Before we get to that, let's take a look at what analysts think about this company. Guys, the analysts are extremely optimistic. They expect profits to triple over the next four years, from about $11.50 per share to $35 per share.

Ironically, they are forecasting revenue growth from 105 billion to 290 billion and then a drop to 140 billion. There may be something wrong with what these analysts are looking at. I find this rather surprising.

So, guys, we have a story and we have some numbers. Let's put them together and figure out the value of the company to us based on our assumptions about the future. Okay guys, I'm conducting a 10-year analysis.

My task is to make low, medium, and high assumptions for all these categories. First, revenue growth. I will assume revenue growth rates of 15%, 20% and 25% for the next ten years.

I want you to keep in mind that I don't actually believe this. To me, this is very optimistic, but I just want to see how it will look based on these optimistic assumptions. Now, some might say, "Paul, give us your honest opinion."

Good. I will use revenue growth rates of 5%, 15% and 25%. Now, you might say, "Paul, 5% is too low."

Next, the profit margin. I put in 23 %, 27% and 31%. One thing I would say is that their free cash flow is much better than their profit margin, but the profit margin is starting to catch up now.

So, that big jump might be acceptable because if you look here, they've achieved about 43% to 44% free cash flow over the past five to ten years, while profits are only just starting to catch up with them.

This is a good sign here. I like what I see here. Therefore, I will focus on free cash flow at rates of 38%, 42% and 46%.

Next, what is the price-to-earnings (PE) ratio? What price-to-free cash flow multiple would I assign to Broadcom at the end of my analysis 10 years from now? Not the current price, not after 5 years, but at the end of my analysis.

Guys, the way I would suggest to deal with this is that the market average is between 15 and 16, and maybe 17 over long periods. Is this company better than the average company in the market?

I would say that it is. Therefore, I will give it a price premium. It has high returns on capital and good profit margins. I will put the values 16, 19, and 22.

Finally, the intrinsic value without a safety margin for a return of 9.5%. I am not trying to determine the price I am willing to pay based on this return. I am trying to find out its fair market value.

From there, I can determine a safety margin to buy it at a cheaper price. So, press the analyze button. The stock is at a price of 350. I have a low price of 120, a high price of 850, and an average price of 330.

For me, guys, the stock isn't screaming "buy me," but I'm making different assumptions than others. Your assumptions may differ from mine, which is why you can enter your own assumptions into the stock analysis tool.