Broadcom (AVGO +5.41%) has been a phenomenal artificial intelligence (AI) stock over the past three years, rising 449% thanks to rising demand for the company's processors as large tech companies fight for AI dominance.
And more gains could be on the way. Analysts' average price target for Broadcom stock over the next 12 to 18 months is about $463. That would represent a gain of about 38% at the stock's current price, which seems possible given current AI spending and Broadcom's position in the hardware space.
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Broadcom is a leader in AI processor hardware
Broadcom designs and manufactures application-specific integrated circuits (ASICs) that have quickly become an important part of AI data centers. The company's customers include leading tech companies like Meta and Alphabet.
Counterpoint Research estimates that despite rising competition, Broadcom will remain the leader in AI-focused ASICs, with 60% market share by 2027.
The most recent proof of Broadcom's benefit from this lead can be seen in the company's recently reported first-quarter results. Revenue increased by 29% to $19.3 billion, and non-GAAP earnings per share rose by 28% to $2.05.
Notably, Broadcom's AI revenue jumped 106% from the year-ago quarter to $8.4 billion. And more growth is on the way, with CEO Hock Tan saying AI revenue growth is "accelerating," and the company expects AI semiconductor sales to be $10.7 billion in the second quarter.
With these strong results and the company's lead in the ASICs processor market, Broadcom is in a perfect position to continue growing.
NASDAQ: AVGO
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Soaring AI spending could help accelerate Broadcom stock
Broadcom's leading position in AI processors is bolstered by the fact that large technology companies are accelerating their investments in AI data centers, which should lead to more sales and earnings for Broadcom.
Alphabet, Meta, Amazon, Microsoft, and others have already announced that they'll spend $650 billion on capital expenditures this year alone, with most of the spending due to AI infrastructure.
That's an unprecedented level of spending, and it should continue to be a catalyst for Broadcom's business -- and its share price -- as its customers order more of its chips this year to build more data centers. With Broadcom's lead in ASICs processors and the huge uptick in AI spending, I believe it's reasonable to think Broadcom could reach $460 over the next 12 to 18 months.
But I think investors should also understand that there's still plenty of volatility with AI stocks right now. If the large tech companies begin to cut their spending or indicate that they have all the data center infrastructure they need, then Broadcom and other hardware stocks could feel the pinch.
For now, though, Broadcom still looks like a top AI stock to own.
