Stocks of Broadcom May See Their Best Days Ever as Investors Get a Reason to Dream

Broadcom Inc.’s stock surged to what could become its best single-day performance in history on Friday, driven by investor enthusiasm for the company’s long-term prospects. The shares gained 19.20% in early trading, a significant jump even after the semiconductor and software giant delivered a mixed earnings report. To set a new record, Broadcom’s stock would need to close the day with a gain exceeding 15.83%.

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“There were plenty of jitters heading into this earnings release, and several of the concerns that were anticipated indeed materialized,” noted Bernstein analyst Stacy Rasgon in a client report. For instance, Broadcom’s wireless segment is expected to decline sequentially in the current quarter. Additionally, revenue from application-specific integrated circuits (ASICs) may be more heavily weighted toward the latter half of the company’s new fiscal year, he explained.

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However, Broadcom’s leadership offered a vision that sparked excitement among investors. Management outlined a potential revenue opportunity of $60 billion to $90 billion from artificial intelligence (AI) by 2027, derived from existing customers.

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Furthermore, they hinted at even greater upside potential with two new customers currently in discussions, although their contributions have yet to ramp up. Rasgon highlighted the significance of this outlook, writing, “The AI narrative is really solidifying, perhaps suggesting it’s time for [CEO] Hock Tan to emulate Nvidia’s Jensen Huang and don a leather jacket.”

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In response to the company’s AI-driven potential, Rasgon increased his price target for Broadcom shares to $250 from $195 while maintaining an outperform rating.

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TD Cowen analyst Joshua Buchalter echoed Rasgon’s sentiment, stating, “AI commentary is the key driver for this report.” He noted that the company’s projected serviceable addressable market of $60 billion to $90 billion for fiscal 2027 is “immense,” although challenging to verify at this stage.

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Buchalter also addressed the variability in results tied to the timing of AI deployments. He pointed out that this dynamic could become particularly pronounced in fiscal 2025, as Broadcom transitions its largest custom silicon program for tensor processing units (TPUs) from version 5 to version 6, utilizing 3nm technology. This shift is expected to occur in the latter half of the fiscal year.

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He also highlighted Broadcom’s decision to begin reporting semiconductor revenue in separate “AI” and “non-AI” categories, predicting that this move will likely spark debate as fiscal 2025 unfolds. Buchalter reiterated his buy rating on the stock, raising his price target to $240 from $210.

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Ben Reitzes, an analyst at Melius Research, took a more forward-looking perspective, emphasizing the importance of Broadcom’s 2027 earnings potential. “The real coup here is getting investors to focus on 2027 earnings power, which could exceed $9 per share,” he remarked. He downplayed concerns about near-term issues, such as Apple-related fluctuations, TPU shipment schedules, and VMware customer dynamics, arguing that these factors are less significant in the context of Broadcom’s long-term growth narrative.

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Reitzes also highlighted the broader implications of Broadcom’s growth outlook for the semiconductor industry. “All AI semiconductor and networking companies stand to benefit from these kinds of statements, as they underscore that major firms will continue to invest heavily in AI,” he wrote. Reitzes maintains a buy rating on Broadcom shares, setting his price target at $255.

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The enthusiasm surrounding Broadcom’s AI potential reflects a broader industry trend, as companies increasingly allocate resources toward advancing AI technologies. Broadcom’s ability to position itself as a major player in this space has captured the attention of analysts and investors alike, driving the stock’s remarkable performance. While near-term challenges remain, the company’s robust growth narrative and strategic focus on AI provide a compelling case for long-term optimism.

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