24/7 Insights
- Wall Street expectations for where Broadcom Inc. (NASDAQ: AVGO) stock is headed vary.
- The AI stock isn’t without risks, but analysts by and large are optimistic.
Following on the example set by Chipotle Mexican Grill, Nvidia, Walmart, and others, Broadcom Inc. (NASDAQ: AVGO) has announced a stock split. Splits make a stock more attractive for investors, especially when shares cost more than $1,000 apiece, as is currently the case with Broadcom. It also makes such stocks attractive because they tend to outperform the market afterward, or at least that’s the conventional wisdom. It isn’t always the case, of course. So, shareholders and would-be investors must be wondering where Broadcom stock could be headed.
Why Invest in Broadcom?
Since the merger of Broadcom and Avago in 2016, the stock is up more than 1,100%, most of that gain since the surge in AI stocks began. The semiconductor maker is a top artificial intelligence (AI) momentum stock pick. Broadcom’s revenue has soared since the acquisition of VMware, and it generated more than $4 billion in free cash flow in the second quarter. In addition, the company is said to exhibit a huge competitive advantage as measured by gross margin percentages. Broadcom seems to have a lot going for it, but let’s see what the expectations are for the next year.
Broadcom, the Company
Source: Justin Sullivan / Getty Images
The company designs, develops, and supplies semiconductor devices, with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V based products worldwide. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays.
Broadcom was founded in 1961 and is headquartered in Palo Alto, California. The stock went public in 2009, when the company was known as Avago Technologies. Today, competitors include Microchip Technology Inc. (NASDAQ: MCHP), NXP Semiconductors N.V. (NASDAQ: NXPI), Qualcomm Inc. (NASDAQ: QCOM), and Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM).
Broadcom’s 10-for-1 stock split is scheduled to take place on July 12. The company reported stellar second-quarter results due to AI demand and contributions of its VMware segment, and it boosted its revenue guidance. The VMware acquisition closed late last year after intense regulatory scrutiny. CEO Hock Tan was the highest-paid chief executive in America in 2023. And he joined the Meta board of directors earlier this year.
Ten Reasons to Buy Broadcom Stock Now
Broadcom, the Stock
Source: monsitj / iStock via Getty Images
The share price is about 91% higher than a year ago, despite retreating 9% or so in recent days. The Nasdaq is up nearly 30% year over year. Note that the consensus price target is higher than the all-time high.
Out of 29 analysts who cover the stock, all but two recommend buying shares. Ten analysts have Strong Buy ratings. Among analysts who recently reiterated Buy-equivalent ratings are BofA Securities, Citigroup, and UBS. About 80% of shares are held by institutional investors, including sizable stakes at Vanguard and BlackRock. Note that a couple of insiders sold 3,000 or so shares in June.
Wall Street expectations for where the stock goes in the next 52 weeks vary. While at least one analyst anticipates shares will retreat further, the highest price target indicates plenty of room for the stock to continue to run. Even the consensus projection signals double-digit percentage upside.
| Low target | $1,500 | −9.5% |
| Mean target | $1,886.12 | 13.8% |
| High target | $2,150 | 29.7% |
Overall, the outlook for the stock is rosy. However, it does face some risks. Much of the stock is held by a few institutional investors. And much of the company’s revenue depends on a few big customers. Diminishing returns from VMware could bring weaknesses in other parts of the business into perspective. And there is the chance that the AI bubble bursts.
Clearly, most analysts expect the stock to continue to rally in the coming year. That may depend on Broadband maintaining its dominant position in its AI niche, its VMware continuing to make a big contribution to revenue, and investors not being shaken by the stock split.
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