Broadcom (NASDAQ:AVGO | AVGO Price Prediction) has outshone most of the Magnificent Seven in recent years. Still, the $1.4 trillion semiconductor titan is on the outside looking in, even though it’s done more than enough to prove its magnificence After gaining 122% in the past year, a pretty strong case could be made that Broadcom may be too good for the Mag Seven.
In any case, it’s a top name to keep on the radar, especially as the tech titans (Apple (NASDAQ:AAPL) announced it’ll spend another $100 billion in America, bringing the grand total to $600 billion over the next four years, with much of it going towards AI efforts) and beyond look to keep up with AI spending or run the risk of being left behind. As Apple, one of the big-tech pioneers of custom silicon, ups its bets in AI, I think it’s a mistake to discount the potential of a custom AI chip enabler such as Broadcom, especially if the percentage of AI capex goes from GPUs towards more power-efficient, customized solutions over time.
While time will tell how much more room to run the leading play on custom silicon has left in the tank, I do think it’s hard to ignore just how bullish some big-name Wall Street analysts have become over the past couple of months. Indeed, Broadcom’s meteoric rise caught many by surprise. And while the secret may be out, I still think it’s early days as the titan makes the most of the AI tailwind at its back.
More magnificent than the Mag Seven? How long will that last?
Today, shares of AVGO are flirting with all-time highs, going for just north of $300 per share. With Alphabet (NASDAQ:GOOG) Google, one of Broadcom’s biggest customers, recently upping its capex, it’s not hard to imagine many other big spenders are thinking about doing the same. Of course, all this spending comes with a fair share of risk, but for Broadcom, it’s more of a “picks and shovels” play similar to Nvidia (NASDAQ:NVDA). As big tech capex moves higher, odds are Nvidia or a Broadcom are going to get more business.
As large language models (LLMs) become more commoditized, I view custom chips as one major differentiator. Perhaps one day every tech firm is going to need to know how to build custom silicon, and with a helping hand from Broadcom, it’s not so daunting a task as it once was just over a decade ago.
For now, Broadcom’s Mag Seven customers pay a vast majority of the bills. They’ve got the deep pockets and the leadership to lead the rest of the sector into the next innings of the AI ball game. The big question for investors is whether the rest of the sector will follow the leader and allocate more resources to do business with Broadcom. In the meantime, if the Mag Seven titans floor it on AI, it’s a good sign for Broadcom, especially as more resources go towards the customization of AI solutions.
This Wall Street bull envisions AVGO stock at $400
Given such a pronounced tailwind, I view HSBC analyst Frank Lee’s Street-high $400 price target (that works out to around 30% in upside) as more than realistic, especially if big tech stands to raise its capex faster than the rest of Wall Street can raise its expectations. Not only do I think $400 per share is within the realm of reason, but a $2 trillion market cap (which entails a 43% gain from current levels) may not be far off if the firm makes a habit of topping estimates by leaps and bounds.
In any case, 35.7 times forward price-to-earnings (P/E) seems like a very fair price to pay for a $1 trillion winner that has some profoundly strong AI infrastructure tailwinds at its back. Sure, some may joke that Broadcom is the “poor man’s Nvidia,” but I’m inclined to think it’s an even more exciting play than Nvidia, especially given the less-appreciated long-term potential of AI ASICs. Although I could be wrong, I believe ASICs represent the next frontier in the AI chip boom, and for that reason, AVGO looks a more interesting bet than NVDA.
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