Shares of fabless chip and software maker Broadcom (NASDAQ:AVGO) rose 6.1% in mid-morning trading after Citigroup resumed coverage on the stock with a “buy” rating and set a $1,100 price target , which highlighted the company’s robust core business and expected gains from its acquisition of VMware. The analysis also highlighted Broadcom’s potential to double AI revenue from $4.0 billion in FY23 to over $8.0 billion in FY24.
2023 was a record year for AI stocks, from pure software platforms to AI chip developers and hardware accelerators. Broadcom combines the best of both worlds through its tailored AI accelerator offerings. Its chips help AI chatbots like ChatGPT or Bard respond quickly when you ask them something. Because Broadcom’s chips are really good at making networks work fast, the company is expected to do well as more people want to use AI technology like ChatGPT.
As a reminder, Broadcom reported fiscal 2023 revenue from generative AI, powered by Ethernet solutions and custom AI accelerators, of approximately $1.5 billion, representing 20% of semiconductor revenue. In fiscal year 2024, the company expects generative AI sales to account for more than 25% of semiconductor sales. This underscores the growing momentum in the AI segment and shows that Broadcom is positioned for promising growth in the thriving AI market.
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What does the market tell us:
Broadcom shares are somewhat volatile, with seven moves of more than 5% in the last year. With that in mind, today’s move suggests that the market considers this news significant, but does not view it as something that would fundamentally change its perception of the company.
The biggest move we’ve written about in the last year came seven months ago, when the stock gained 8.5% as the company’s shares received bullish sentiment from Wall Street analysts who saw great potential in the market for artificial intelligence. John Vinh of KeyBanc Capital Markets expects Broadcom to benefit in the near term from its generative AI capabilities – particularly its TPU product. JPMorgan’s Harlan Sur agreed, praising Broadcom’s custom chip business, which he said is “gaining traction at Google for its cutting-edge AI processor chip TPU.”
Broadcom is up 87% year-to-date. Investors who bought $1,000 worth of Broadcom stock five years ago would now be considering a $4,192 investment.
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