Broadcom's stock has doubled in a year. These factors could send it even higher.

By Emily Bary

Deutsche Bank sees three upside drivers for Broadcom shares - and they're not all about AI

Broadcom Inc. shares have surged more than 100% in the past year as the chip company has shown Wall Street that it's picking up its artificial-intelligence spending.

And the stock could head even higher thanks to potential three catalysts, according to Deutsche Bank analyst Ross Seymore. While there are more AI spoils yet to come, Seymore said, Broadcom (AVGO) could also benefit from its recently closed VMware acquisition and see its cyclical business units recover.

Broadcom's custom-silicon business is critical for consumer-focused AI applications like search and social networking, and the company just picked up a third major customer in addition to Alphabet Inc. (GOOG) (GOOGL) and Meta Platforms Inc. (META), which are thought to be its two primary ones currently.

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"These customer wins/relationships are the result of multiyear engagements and highlight the need for lower power and [total cost of ownership] as AI workloads scale in volume, a need that AVGO directly addresses with their design flow and performance architecture for compute," Seymore said.

He added that the company's lead in AI is growing, and that demand is expanding as well.

Meanwhile, Broadcom faces "exciting opportunities for accretion" related to the VMware deal. There, the company stands to benefit from AI as well - including through a private-AI program that does secure AI processing within a customer's secure environment rather than outside of it.

Like numerous other AI-chip beneficiaries, Broadcom must also contend with challenged cyclical businesses outside of the AI realm. Seymore said he sees "substantial cyclical headwinds" there, but noted that trends could improve.

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"While ex-AI networking continues to be weak (inventory burn continuation), bookings in both broadband and server storage connectivity have begun to see improvement (albeit with these largely related to 2025 sales), with a trough likely happening in [the second or third quarter]," he said.

Seymore reinstated coverage of Broadcom's stock with a buy rating and a $1,500 target price. The stock closed Monday at $1,336.

-Emily Bary

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04-08-24 1712ET

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