It's abundantly clear that the advent of generative AI early last year has had a pronounced effect on technology, and one of the clear beneficiaries is Broadcom (AVGO +3.84%). The company supplies semiconductors and other data center equipment that helps form the backbone of AI. The stock has been on fire, and has nearly doubled since this time last year, leading to a much-ballyhooed stock split.
The company's strong results and the excitement generated by AI have Wall Street updating the company's prospects, resulting in a surge of higher price targets. One analyst's opinion should be of keen interest to Broadcom shareholders.
NASDAQ: AVGO
Key Data Points
Resetting expectations
Bank of America analyst Vivek Arya maintained a buy rating on Broadcom stock and raised his price target to a Street-high $2,150. That represents potential gains for investors of 35% over the coming year compared to its closing price on Monday, even though the stock has nearly doubled over the past year. Broadcom's better-than-expected second-quarter financial results and resulting 10-for-1 stock split provide strong evidence that the company is morphing from a value stock into a growth stock.
Arya said he expects Broadcom's semiconductor and software sales to drive robust growth, resulting in adjusted earnings per share (EPS) of $69 in fiscal 2026. That represents a forward price-to-earnings (P/E) ratio of 23, a discount to the multiple of 28 for the S&P 500.
I think the analyst hit the nail on the head. AI is currently Broadcom's biggest growth driver. In the second quarter, sales of AI-related merchandise climbed to a record-setting $3.1 billion, making up 25% of total sales. The company also increased its full-year forecast to $51 billion, up from $50 billion, which many believe to be conservative.
Don't let the stock's attractive valuation fool you. Broadcom has been a boon to shareholders, having surged 2,130% over the past 10 years.
For those reasons and more, Broadcom stock is a buy.
