Shares of Broadcom (AVGO 3.93%) rallied 4.2% on Tuesday, as of 1 p.m. ET.
Semiconductors were broadly higher, based on new data that confirmed strong growth in the sector. In addition, one Wall Street sell-side analyst wrote a very positive note on Broadcom specifically, and the outlook for its custom artificial intelligence (AI) ASICs.
Broadcom to $400?
Today, research firm Counterpoint Research released its final data for the semiconductor foundry industry's first quarter of 2025. Counterpoint's data showed a solid 13% increase in foundry revenue, which the firm noted was powered by artificial intelligence chips, especially those made by Taiwan Semiconductor Manufacturing.
That includes Broadcom, which has a large part of its semiconductors produced by TSMC, especially its custom AI ASIC chips that it co-produces for the large cloud giants. And if foundry revenue grew strongly in the first quarter, that could likely mean strong chip sales in the second quarter, given that foundries produce chips before they're sold.
On that note, HSBC semiconductor analyst Frank Lee raised his price target on Broadcom today from $240 to a whopping $400 per share, representing 53% upside from today's stock price.
The massive jump is based on Lee's conviction that AI ASICs will now achieve better-than-expected growth relative to prior expectations, perhaps taking more AI market share from Nvidia and Advanced Micro Devices. Lee increased his estimates for Broadcom's ASIC revenue to $28.4 billion in 2026 and $42.8 billion in 2027, which are 42% and 69% above the average analysts' expectations, respectively.
Image source: Getty Images.
But investors may want to be wary of valuation
No doubt, Broadcom has defied skeptics over the past five years and has regularly trounced expectations. That being said, the stock already has a premium valuation. Lee's $400 target is based on 32 times 2027 earnings estimates. That's actually a 10% premium to Broadcom's peak P/E ratio over the past three years. So not only does Lee predict better-than-expected growth, but he also puts an all-time high valuation on future earnings estimates to get to $400.
That's not to say Broadcom can't do it; however, the stock is no longer a no-brainer to reach new heights in the very near term. But even skeptics would have to say the chip giant is extremely well positioned in the AI era.
