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Broadcom (AVGO) stock is killing it in 2024, with the shares managing to strike a neat balance between broad-market outperformance and the “bubble” warnings that have started to plague some of its peers in the artificial intelligence (AI) space. The company's stock has already gained more than 17% so far this year, leaving the 10% advance of the S&P 500 Index ($SPX) in the dust.
This strong performance is no surprise, given the massive boom in AI, coupled with Broadcom's prime position to cash in on the trend. The company supplies both the hardware and software that's powering the latest AI apps - and in Broadcom's recent "Enabling AI Infrastructure" investor meeting, management showcased its cutting-edge AI solutions and announced a new custom ASIC (XPU) customer.
So, just how high can Broadcom stock go in 2024? To answer that, we need to dive into the nitty-gritty of the company's financials, growth engines, and some recent updates from Wall Street experts tracking the shares. Here's a closer look at this AI chip giant.
About Broadcom Stock
Broadcom (AVGO) is having a pretty good run this year, with its stock price climbing a cool 17% since the start of 2024. Valued at $617 billion by market cap, it's the second-biggest semiconductor stock in the Nasdaq-100 Index (($IUXX), behind only Nvidia (NVDA).
What's got investors scooping up the stock? Two words: artificial intelligence. Broadcom is positioned perfectly to cash in on the exploding demand for AI infrastructure, and investors are taking notice.
The company has been crushing it in the earnings department, too. They've beaten earnings expectations for four quarters straight, on an adjusted basis, and in Q1 of fiscal 2024, revenue jumped a whopping 34.2% year-over-year. Even without the boost from the recent VMware acquisition, Broadcom still grew revenue by an impressive 11%. The secret sauce? Strong demand for their networking products in AI data centers and custom AI accelerators from Big Tech giants.
In the Q1 earnings release, Broadcom CEO Hock Tan, talked up the company's AI opportunities, saying, "Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment."
Overall, fiscal Q1 EPS of $10.99 and revenue of $11.96 billion both topped Wall Street's estimates. However, Broadcom's reaffirmed full-year revenue forecast of $50 billion came in a little light; according to analysts' consensus estimates, earnings are expected to rise 11.8% to $47.26 this fiscal year, with revenue increasing 40.2% to $50.2 billion.
How Broadcom's AI Infrastructure Could Drive Growth
Broadcom recently held an investor meeting called "Enabling AI Infrastructure," where they showed off a bunch of cool tech designed to support large-scale AI systems. One of the most significant announcements from the event was Broadcom's third custom ASIC (XPU) customer, a cloud-scale consumer internet company. This new customer and strong demand from hyperscalers for custom AI accelerators have led Broadcom to raise its AI sales forecast to over $10 billion for the fiscal year 2024, representing 35% of its semiconductor segment and 20% of overall sales.
Broadcom's AI infrastructure lineup is packed with innovative products that are perfect for big AI projects. They introduced Bailly, which is basically a super-powerful Ethernet switch that combines optical engines with their Tomahawk 5 switch ASIC. This bad boy uses way less power and packs a serious punch when it comes to silicon photonics density.
As companies continue to crave bigger and better AI clusters, high-speed optical interconnects and advanced networking solutions are going to be more important than ever. That plays right into Broadcom's strengths.
Another big win for Broadcom is the VMware acquisition they wrapped up in November. By combining VMware's software with their own portfolio, Broadcom is expecting to create new opportunities for sales and revenue growth. VMware's infrastructure software is set to make up a whopping 40% of Broadcom's total revenue in fiscal year 2024. With such a strong AI infrastructure portfolio and a growing list of customers, it's no surprise that analysts are taking notice of Broadcom's AI game.
What Do Analysts Expect for AVGO?
TD Cowen upgraded Broadcom last week from "Market Perform" to "Outperform," saying the company could see some serious upside from its AI infrastructure and software growth. The brokerage firm handed out a $1,500 price target, implying expected upside of roughly 15% from current levels.
Oppenheimer, another high-profile analyst firm, is also feeling good about Broadcom, keeping its "Outperform" rating. They consider AVGO a "core AI name, and also target a move up to $1,500.
JPMorgan (JPM) analysts, meanwhile, backed an even more ambitious $1,700 price target after the investor day event. This represents a premium of about 30% to AVGO's current price.
Overall, analysts are totally digging Broadcom, with 27 of them weighing in on the stock. A whopping 24 analysts are saying "Strong Buy," while the other 3 are holding steady with a "Hold" rating. The average price target of $1,485.05 is about 13.3% north of current levels.
Does Broadcom Have Trillion-Dollar Potential?
While AVGO is firmly in mega-cap territory, joining the elite club of companies with trillion-dollar valuations is a whole different ballgame. Still, with the way Broadcom's been making moves to monetize AI already, along with its acquisition of VMware, achieving trillion-dollar status isn't out of the question in the years ahead. For investors seeking AI semiconductor stocks with room to keep growing, AVGO should be a strong contender.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
