At the end of the week, Broadcom shares are attracting attention.
• Broadcom held a high-profile AI technology event
• Analysts enthusiastic about the company’s AI product diversity
• Broadcom shares have been on the rise for months – now things are continuing to rise
When it comes to AI stocks, people usually talk about NVIDIA, AMD or Super Micro Computer – but less so about Broadcom, although the Californian semiconductor company seems to be well positioned when it comes to AI technology. One analyst even goes a step further and calls it “world class,” which shareholders are extremely pleased to note.
Matthew Ramsay on Broadcom shares: “Better late than never?
On Thursday, Broadcom held a high-profile event on the current status and future of its AI technology. Apparently the Californian company, which was founded in 1961 as a subdivision of Hewlett-Packard (HP) and was still called Avago at the time, gained a new fan during the event. This is how analyst Matthew Ramsay, who works at the investment firm TD Cowen, titled his note “Better late than never?” Ramsay is alluding to the brilliant rally in Broadcom shares, which the analyst clearly still has room for improvement despite the recent price jumps.
Ramsay was particularly pleased that Broadcom was able to secure a third accelerator customer for its custom silicon business. “Broadcom declined to name the specific customer, but noted that the program is underway now and will begin shipping in large volumes later this year,” MarketWatch quoted Ramsay’s note as saying. “In our view, this has the potential to significantly increase revenue in the network segment, as the company is unlikely to be committed to a small custom silicon program (given its preferred margin profile).”
In addition, Broadcom could surprise positively with its growth and operating cost synergies from the VMware deal, he wrote. Ramsay linked the positive comments to a price target increase: The TD Cowen analyst raised his rating on Broadcom shares from “Market Perform” to “Outperform” and increased his price target from $1,400 to $1,500.
Tristan Gerra: World-class AI for a bargain price
Ramsay is by no means the only analyst enthusiastic about Broadcom’s prospects. Tristan Gerra from Baird’s can also be counted in the Broadcom fan club. In Gerra’s view, Broadcom is a “world-class AI stock” but is not trading at an “AI valuation” on the stock market.
The US company is reducing the cost and power consumption of AI connections in several ways, as Gerra noted, according to MarketWatch: “These technological achievements are driving Broadcom’s high gross margin profile and alleviating concerns raised by some investors in recent years that Broadcom “Under-invested in its business areas – instead, the company strategically deploys its resources to be the best in the areas that matter, which today happens to be all of the core AI technologies.”
Investors received this outstanding innovation at a comparatively low price, says Gerra. From a valuation perspective, Broadcom shares trade at 21 times Gerra’s pro forma earnings per share expectations for fiscal 2025, when excluding stock compensation. “Given Broadcom’s network AI technology and market leadership coupled with very high margin profiles, the stock remains inexpensive relative to other AI-centric companies,” said Gerra. His rating on Broadcom shares is “Outperform” and the price target is $1,500, which is the same level as Ramsay’s.
Srini Pajjuri: Impressed by the breadth of the product offering
A third analyst drawing high praise from Broadcom’s AI event is Srini Pajjuri of Raymond James. While he maintained his “Market Perform” rating on Broadcom stock, he and his team were “impressed with the breadth and depth of Broadcom’s product offerings [Broadcom] for data centers and AI markets”. They assume “that [generative] AI will remain a key growth driver for the company’s semi segment for the foreseeable future,” Pajjuri wrote.
This is how the shareholders react
The various positive analyst opinions that Broadcom received had an extremely positive effect on the share price. Apparently many investors took the experts’ enthusiasm as an opportunity to buy more or add Broadcom to their portfolio.
The result was strong demand pressure, which pushed Broadcom shares up 5.64 percent to $1,348.00 in NASDAQ trading on Thursday. This continues the impressive bull run of the shares: Over a twelve-month period, Broadcom shares have now gained 112 percent in value. The rally continues on Friday: the shares temporarily gained 1.55 percent to 1,369.47 US dollars.
Strong increase in sales
Even the slump in net profit in the fourth quarter of 2023 could not change the excellent sentiment surrounding Broadcom shares. This decline was due to high acquisition-related costs, for example Broadcom took over the software manufacturer VMware at the end of last year. Annual sales rose by a good third to around $12 billion.
Editorial team finanzen.net
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