Broadcom's stock climbs as one bull calls it a 'world-class' AI play - for cheap

By Emily Bary

Broadcom impresses analysts with a recent AI event

Broadcom Inc.'s stock is raking in the love from Wall Street analysts Thursday, after the company held an event focused on its opportunity in artificial intelligence.

The chip maker's commentary was enough to earn it a new fan, as TD Cowen's Matthew Ramsay turned bullish on Broadcom shares (AVGO) in a note to clients that included a header that read: "Better Late Than Never?"

Broadcom shares were up 6.5% in afternoon trading Thursday, and they have advanced 114% over the past 12 months. But Ramsay sees more upside ahead stemming from multiple levers.

See also: Broadcom earnings spotlight tech's growing AI 'dichotomy'

For instance, Ramsay likes that the company is adding a third accelerator customer for its custom-silicon business.

"While Broadcom declined to name the specific customer, it did indicate the program was ramping now and would ship in volume later this year," he wrote. "In our view, this has the potential to drive material upside in networking segment revenue given the company is unlikely to have committed to a small-scale custom silicon program (given its preferred margin profile)."

Additionally, Broadcom could positively surprise with its growth and operating-expense synergies on the heels of its VMware deal, he wrote.

Ramsay lifted his rating on Broadcom shares to outperform from market perform and boosted his target price to $1,500 from $1,400.

Baird's Tristan Gerra said that Broadcom is a "world-class" play on AI networking but is trading at a "non-AI valuation."

The company is lowering the cost and power usage of AI interconnections in a variety of ways, he noted: "These technology feats drive Broadcom's high gross-margin profile, dismissing past years' concerns from some investors that Broadcom was under-investing in its businesses - it is instead strategically allocating resources to be the best in the areas that matter, and which all happen to be core AI technologies today."

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From a valuation standpoint, Broadcom shares trade at 21 times Gerra's pro-forma earnings-per-share expectations for fiscal 2025, when excluding stock compensation. "In the context of Broadcom's networking AI technology and share leadership along with very high margin profiles, [the] stock remains inexpensive relative to other AI-centric names," he said.

He has an outperform rating and a $1,500 target price on the stock.

Raymond James's Srini Pajjuri was similarly upbeat about the event, though he kept his market-perform rating on the shares.

He and his team "came away impressed with the breadth and depth of [Broadcom's] product offerings for data-center and AI markets, and expect [generative] AI to remain a key growth driver for the company's semi segment for the foreseeable future," he wrote.

-Emily Bary

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03-21-24 1448ET

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