Broadcom (NASDAQ: AVGO | AVGO Price Prediction) is a data center semiconductor and software company. It has a Semiconductor Solutions segment and an Infrastructure Software segment.
24/7 Wall St. Key Points:
- Broadcom has delivered stellar gains in the past few months.
- The gains seem to be accelerating even more.
- Two bullish analysts now think the stock can reach $300 and perhaps follow in Nvidia’s footsteps. Speaking of Nvidia, don’t forget to claim our free “The Next NVIDIA” report.
Wall Street analysts have been increasingly bullish on its prospects for 2025. The highest price target for Broadcom is $300, and it’s not just one analyst with a rosy outlook. Blayne Curtis from Jeffries raised his price target on AVGO from $225 to $300 in late December and Cantor Fitzgerald raised its price target from $250 to $300. That implies about a 27% gain on top of the 95% gain in the past year.
Why Analysts Are Bullish on Broadcom
Will there be more gains?
Broadcom has posted stellar growth in the past few years and this growth is expected to continue in the coming years too. Its AI-related revenues have more than tripled in fiscal 2024, with analysts projecting this growth to continue and reach $17-18 billion in fiscal 2025 and potentially even $30 billion by 2027.
Moreover, Broadcom’s VMware acquisition in November 2023 has significantly boosted Broadcom’s software segment. This is a high-margin software business that also complements Broadcom’s semiconductor operations.
It’s no secret that analysts love fast-growing high-margin businesses, especially if they come with the AI label. If Broadcom continues on this trajectory, I believe there’s a good chance it will continue to receive optimistic price targets from analysts as it climbs higher.
Can Broadcom Rival Nvidia?
Perhaps, but Broadcom doesn’t need to.
You’ll often hear that Nvidia (NASDAQ: NVDA) is miles ahead of its competition and has no rivals. However, that isn’t entirely true. Of course, Nvidia’s AI GPU business currently has no serious competition in terms of performance. In fact, its recent Blackwell series even apparently breaks Moore’s Law. Broadcom doesn’t even make GPUs.
Instead, Broadcom makes AI chips. These are called Application-Specific Integrated Circuits (ASICs) and you may have heard about them being talked about them being used for crypto mining. ASICs are being proven to be very efficient at inference tasks due to how specialized they are and outperform GPUs in terms of energy efficiency. Plus, they are cheaper in the long run and eliminate the “bloat” of general-purpose GPUs. The catch is that the upfront costs are quite high for ASICs, so only big companies have pockets deep enough to get these ASICs up and running. That said, such big companies — especially those in the Magnificent Seven — form a big chunk of Nvidia’s revenues.
Regardless, the addressable market for ASICs doesn’t fully overlap with the AI GPU market. You’re more likely to see them complement each other since GPUs are still better at training AI models.
So yes, Broadcom can rival Nvidia and has been doing so. The AI chip market should be able to accommodate them both if analysts are right and they grow at a 38.2% CAGR through 2032 to $383.7 billion. Broadcom itself expects a total addressable market for its AI hardware at around $60 billion to $90 billion by fiscal 2027.
How Much Higher Can AVGO Stock Go?
Almost 30% more, at least according to the bullish analysts.
Broadcom is up over 632% in the past five years, and while we may not see it repeat such a terrific performance in the next five years, there’s a good chance that it will continue to outperform the broader market. You do need to keep in mind that this will require all the rosy projections about AI to come to fruition as you’re already paying 37 times forward earnings and 18 times forward sales for the stock.
I believe you’re paying a much higher premium for Broadcom than even Nvidia since it has a lower revenue and earnings growth. EPS growth is expected to be at 30.4% in FY25 and 20% in FY26. On the other hand, revenue growth is expected to be 19% in FY25 and 15% in FY26. I think this is mainly because Broadcom rules the ASIC market with a 55-60% market share. The next contender only has a 13-15% market share.
But even then, I don’t think investors will be happy paying 25 times sales or more for AVGO stock unless it starts to heavily outperform estimates. Broadcom’s current price already bakes in a very optimistic long-term trajectory for the company, but if I were to assume that the current AI rally will continue, I agree with the aforementioned analysts that Broadcom could still climb 30% more. Any more than that would start to make it look like Palantir (NASDAQ: PLTR), minus the Fed contracts moat.
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