TLDR:
- Broadcom announced a 10-for-1 stock split in June 2024
- The company is a leader in networking chips and custom AI accelerators
- Wall Street analysts are bullish on Broadcom’s AI potential
- Broadcom’s stock has outperformed many semiconductor peers recently
- Analysts have set price targets implying 13-40% upside potential
Broadcom, a leading semiconductor and infrastructure software company, has seen its stock surge in recent months as Wall Street becomes increasingly bullish on the company’s artificial intelligence (AI) potential and strong financial performance.
The company, which announced a 10-for-1 stock split in June 2024, has defied market volatility and outperformed many of its semiconductor peers.
Broadcom’s business is divided into two main segments: semiconductor solutions and infrastructure software. The company has established itself as a leader in several markets, including application-specific integrated circuits (ASICs) and networking chips. This strong market position is particularly relevant given the growing demand for AI infrastructure.
In the semiconductor space, Broadcom holds a dominant 80% market share in Ethernet switch chips, a market expected to grow at 20% to 30% annually over the next few years.
The company also commands 55% to 60% market share in high-end ASICs, having worked with tech giants like Google and Meta Platforms to develop custom machine learning chips.
Broadcom’s AI chip business is poised for significant growth, with the company recently securing three new clients for custom AI chips, including ByteDance (TikTok’s parent company) and OpenAI. This expansion aligns with industry projections that predict AI accelerator sales will increase at a 29% annual rate through 2030.
The company’s recent acquisition of VMware has further strengthened its position in the software market, adding virtualization software to its existing portfolio of cybersecurity and mainframe software solutions.
This diversification is expected to provide additional growth opportunities, particularly as enterprise customers look to run AI workloads.
Broadcom’s financial performance has been impressive, with total revenue increasing by 47% in the most recent quarter. However, it’s worth noting that when excluding the contribution from VMware, the growth rate was 4%.
This reflects the company’s exposure to both fast-growing AI-related markets and slower-growing traditional semiconductor and software markets.
Wall Street analysts have expressed optimism about Broadcom’s prospects. Goldman Sachs analysts view the company as “a critical piece to the ongoing AI infrastructure build-out,” alongside Nvidia. Bank of America analysts have suggested that Broadcom could leverage its VMware acquisition to upsell AI-related services to enterprise customers.
The stock’s performance has been particularly strong in recent weeks, with shares jumping more than 30% in just three weeks, coming within $4 of the all-time high set in June. This upward trend has remained intact despite some volatility in the broader semiconductor sector.
Looking ahead, Wall Street expects Broadcom’s earnings to grow at 22% annually through 2025. Analysts have set price targets ranging from $195 to $240 per share, implying potential upside of 13% to 40% from current levels.
