Most investors scouring the technology sector for its top growth prospects probably don't have Broadcom (AVGO +0.29%) on their radar. But perhaps they should. Shares of this unassuming telecom soared 108% last year, shocking plenty of people. That's not a bounceback move from a lousy 2023, either, as the stock nearly doubled then.
What gives? Simply put, this company is plugged into the rapid rise of artificial intelligence.
The planets are aligning for Broadcom's business
Nvidia (NVDA +0.93%) has been the poster child of the AI revolution so far, and rightfully so. Its processors are the heart of the vast majority of AI data centers. As time marches on, though, data center operators are looking for other ways of handling even more data, and handling it even faster.
That's where Broadcom enters the picture. It makes much of the tech that connects hard drives to motherboards, interlinks all the separately operating computers that collectively make up a server stack, and even makes the fiber-optic connection tech needed to turn walls of computer circuity into a true AI data center. That's not all it manufactures, but this business accounts for the bulk of its growth. Last quarter's 44% year-over-year top-line improvement was led by a 220% increase in sales to artificial intelligence customers.
NASDAQ: AVGO
Key Data Points
This is still just the beginning. Just last month, Broadcom CEO Hock Tan suggested the annual AI chip market could swell from its current range of between $15 billion and $20 billion to something in the ballpark of $60 billion to as much as $90 billion per year by 2027. For perspective, the company did $12.2 billion worth of this business for itself in its recently ended fiscal 2024.
The market's been increasingly connecting these dots since well before December's bold prediction, though, recognizing that the next chapter of artificial intelligence's advent will heavily feature Broadcom's offerings.
Be patient, but not stubborn
But is this stock a buy now following not one but two fantastic years?
Overvaluation is a legitimate concern here. Although shares are below analysts' current consensus price target of $247.54, that's not a massive amount of perceived upside relative to the stock's current price. Meanwhile, last month's heroic 44% advance alone leaves shares seemingly vulnerable to near-term profit-taking. It wouldn't be wrong to be patient enough to wait for a decent-sized pullback before stepping in.
Just don't wait too long or be too stingy. There's a reason two-thirds of the analyst community still rates this stock a strong buy despite its recent red-hot gains. That is, the underlying growth opportunity is not only massive, but inevitable.
