AI chipmaker Broadcom gets Wall Street praise ahead of earnings
What recent actions have analysts taken regarding Broadcom's stock and its potential in the AI chip market?
Analysts have recently taken several actions regarding Broadcom's stock and its potential in the AI chip market5. JPMorgan analyst Harlan Sur wrote that Broadcom's custom-chip business appears to be seeing "accelerating orders from Google for its advanced AI processor chip called TPU." He also noted that Broadcom expects to do $3 billion in revenue from total cloud custom chip (ASIC) shipments this year, which would already be ahead of the $2 billion it saw last year. Additionally, Evercore ISI analyst C.J. Muse expects "generative AI green shoots" to help "counterbalance clear signs of deterioration across several of AVGO's key end markets" including wireless, storage, and broadband.
Furthermore, a number of analysts have provided optimistic research and set 12-month price targets for Broadcom, revealing an average target of $1576.97, a high estimate of $1850.00, and a low estimate of $1400.00. This upward trend is evident, with the current average reflecting a 15.25% increase from the previous average price target of $1368.30.
Some key analyst actions include:
- JPMorgan raising its growth forecast for the custom AI chip market and saying Broadcom's dominance in the space is poised to continue.
- Bernstein chip analysts sending a presentation to clients that outlined why Broadcom is one of their best ideas, citing its AI opportunity and attractive valuation, among other reasons.
- Melius initiating coverage of Broadcom with a price target that implied around 40% upside, labeling it "one of the must-own AI stocks."
About 78% of the Wall Street analysts covering Broadcom have a buy-equivalent rating on the stock, with an average price target of roughly $1,563, according to FactSet, representing more than 11% upside to Thursday's close.
How does Broadcom contribute to the AI computing ecosystem through its networking and custom chip products?
Broadcom contributes to the AI computing ecosystem through its networking and custom chip products in two main ways:
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Networking Products: Broadcom offers a portfolio of products, including Ethernet switches and adapters, used in data centers to connect high-performance servers for smooth and efficient data communication. These networking chips form the plumbing of data centers, ensuring that AI systems can communicate effectively. Large cloud-computing providers and companies operating their own data centers are key customers of these networking products.
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Custom Processors: Broadcom is best known for co-designing Alphabet's Tensor Processing Units (TPUs). They have collaborated on the creation of AI chips for years, and Broadcom recently won the contract to co-design the seventh iteration of the TPU, targeted for production in 2026. More tech giants are looking to design in-house chips, and Broadcom's custom silicon business caters to this growing demand.
By providing both networking products and custom processors, Broadcom plays a significant role in the AI computing ecosystem, enabling efficient communication within AI systems and supporting the development of custom chips for major tech companies.
What specific growth forecast did JPMorgan recently provide for the custom AI chip market, and how does it affect Broadcom?
JPMorgan recently raised its outlook for the custom AI chip market to between $20 billion and $30 billion, with the high end of the range increased by $5 billion. The analysts see it growing at a 20% compound annual growth rate (CAGR). This growth forecast is significant for Broadcom, as the company is a major player in the custom AI chip market.
Broadcom is best known for co-designing Alphabet's tensor processing units (TPUs) and has an estimated 55% to 60% market share in the custom chip market, according to JPMorgan. With the increasing demand for custom AI chips, Broadcom is expected to benefit from this growing market. The company's strong position in the market, as well as its strategic partnerships with tech giants like Alphabet, Meta Platforms, Amazon, and Microsoft, will likely drive exponential revenue growth and further strengthen its dominance in the custom AI chip market.