An In-Depth Analysis of Broadcom Stock’s Growth Potential in 2024

Broadcom (NASDAQ:AVGO) is making significant strides in 2024, showcasing a stellar performance that surpasses the broader market while navigating through cautious signals within the artificial intelligence (AI) sector. With its shares surging over 17% since the beginning of the year, Broadcom has outpaced the S&P 500 Index ($SPX), demonstrating robust growth prospects.

The company’s remarkable performance is attributed to the exponential growth in the AI realm, where Broadcom is strategically positioned to capitalize on emerging trends. By providing both hardware and software solutions powering cutting-edge AI applications, Broadcom stands at the forefront of this transformative wave. Recently, during Broadcom’s “Enabling AI Infrastructure” investor meeting, management unveiled its state-of-the-art AI solutions and announced a new custom ASIC (XPU) customer.

Given this backdrop, investors are curious about the upward trajectory of Broadcom stock in 2024. To delve into this question, let’s dissect the company’s financial performance, growth drivers, and insights from industry analysts closely monitoring the stock. Here’s an in-depth analysis of this AI chip giant.

About Broadcom Stock

Broadcom (NASDAQ:AVGO) is enjoying a remarkable year, with its stock price soaring by an impressive 17% since the onset of 2024. With a market capitalization of $617 billion, it stands as the second-largest semiconductor stock in the Nasdaq-100 Index (($IUXX), trailing only Nvidia (NASDAQ:NVDA).

What’s driving investor interest in Broadcom? The answer lies in the realm of artificial intelligence. Positioned strategically to meet the surging demand for AI infrastructure, Broadcom has garnered significant attention from investors.

Moreover, the company has consistently outperformed earnings expectations, boasting four consecutive quarters of beating adjusted earnings estimates. In the first quarter of fiscal 2024, revenue surged by a notable 34.2% year-over-year. Even excluding the impact of the recent VMware acquisition, Broadcom achieved an impressive 11% revenue growth. The catalyst behind this growth? Strong demand for networking products in AI data centers and custom AI accelerators from major tech players.

During the Q1 earnings release, Broadcom CEO Hock Tan emphasized the company’s AI opportunities, citing, “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.”

While Broadcom’s fiscal Q1 earnings per share (EPS) of $10.99 and revenue of $11.96 billion surpassed Wall Street’s estimates, the reaffirmed full-year revenue forecast of $50 billion fell slightly short. Analysts anticipate an 11.8% rise in earnings to $47.26 per share this fiscal year, accompanied by a 40.2% increase in revenue to $50.2 billion.

Driving Growth Through AI Infrastructure

Broadcom recently hosted an investor meeting titled “Enabling AI Infrastructure,” showcasing innovative technologies designed to support large-scale AI systems. A significant announcement from this event was Broadcom’s acquisition of a third custom ASIC (XPU) customer, a cloud-scale consumer internet company. With this new customer and robust demand from hyperscalers for custom AI accelerators, Broadcom has raised its AI sales forecast to over $10 billion for fiscal year 2024, constituting 35% of its semiconductor segment and 20% of overall sales.

Broadcom’s AI infrastructure portfolio comprises groundbreaking products tailored for extensive AI projects. One notable introduction is Bailly, a high-performance Ethernet switch that integrates optical engines with Broadcom’s Tomahawk 5 switch ASIC. This innovative solution offers superior silicon photonics density while consuming less power.

As enterprises continue to pursue larger and more advanced AI clusters, high-speed optical interconnects and advanced networking solutions will play a pivotal role. This aligns perfectly with Broadcom’s core strengths.

Another significant milestone for Broadcom is the completion of its VMware acquisition in November. By amalgamating VMware’s software with its existing portfolio, Broadcom anticipates unlocking new avenues for sales and revenue growth. VMware’s infrastructure software is projected to contribute a substantial 40% to Broadcom’s total revenue in fiscal year 2024. With a robust AI infrastructure portfolio and a growing customer base, analysts are optimistic about Broadcom’s prospects in the AI domain.

Analyst Expectations for AVGO

TD Cowen recently upgraded Broadcom from “Market Perform” to “Outperform,” citing potential upside from its AI infrastructure and software growth. The brokerage firm assigned a $1,500 price target, implying approximately 15% upside from current levels.

Similarly, Oppenheimer maintains an “Outperform” rating for Broadcom, considering it a core AI player, with a target price of $1,500.

JPMorgan (NYSE:JPM) analysts have set an even more ambitious target of $1,700 following the investor day event, representing a premium of approximately 30% to AVGO’s current price.

Overall, analysts hold a bullish outlook on Broadcom, with 24 out of 27 analysts rating the stock as a “Strong Buy,” while the remaining 3 maintain a “Hold” rating. The average price target of $1,485.05 reflects a potential upside of about 13.3% from current levels.

Potential for Trillion-Dollar Valuation?

While Broadcom remains firmly within a mega-cap territory, achieving trillion-dollar status presents a distinct challenge. However, with its strategic initiatives to capitalize on the AI wave and the VMware acquisition, Broadcom is positioned for significant growth in the coming years. For investors seeking exposure to AI semiconductor stocks with substantial growth potential, Broadcom emerges as a compelling choice.

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