Broadcom (AVGO) has become a Wall Street darling, evidenced by a flurry of analyst upgrades and price target revisions following a strong earnings report and promising outlook. The positive sentiment is largely fueled by the company's expanding influence in the artificial intelligence (AI) sector, prompting many to anticipate sustained growth.
The Broadcom stock price is set for a new high at the open, with pre-market trading putting AVGO at $339.30, up 10.85% following the release of its upbeat fourth-quarter revenue forecast. This increase reflects growing confidence in Broadcom's capacity to capitalize on the surging demand for AI chips.
KeyBanc Capital Markets, Barclays, Bernstein, JPMorgan, and BofA have all raised their price targets for Broadcom to $400, underscoring their confidence in the company's trajectory.
Benchmark increased its price target to $385, while Mizuho set a target of $355.
Oppenheimer and Piper Sandler are also bullish, raising their targets to $360 and $375, respectively. Even Wells Fargo, while maintaining an Equal Weight rating, increased its target to $345.
Strong AI-Driven Performance
Broadcom's third-quarter results revealed a 63% surge in AI-related revenue, reaching $5.2 billion. This growth is attributed to strong demand for custom AI accelerators and networking components. The company has also introduced new products, such as the Tomahawk Ultra and next-generation Jericho networking chips, designed to enhance AI computing performance.
The company forecasts revenue of approximately $17.4 billion for the fourth quarter, surpassing market expectations. AI semiconductor revenue is projected to reach $6.2 billion, indicating sustained growth in this segment.
A pivotal development driving this optimism is Broadcom's strategic partnership with OpenAI. OpenAI plans to commence mass production of proprietary AI chips in 2026 through this collaboration. This initiative is aimed at meeting the escalating demand for computing power and reducing reliance on industry leaders. Markets see this partnership as a catalyst for further growth, solidifying Broadcom's position as a key player in the AI landscape, and a potential long term disruptive player.
A Top Pick
JPMorgan analysts have named Broadcom as their top pick in the semiconductor sector, highlighting the company's better-than-expected results and solid revenue outlook. This positive assessment is echoed by BofA, which emphasizes Broadcom's expanding custom AI chip lineup, including a fourth major customer, likely OpenAI, joining existing clients like Google and Meta.
Benchmark analysts have drawn comparisons between Broadcom's performance and Nvidia's strong quarter, noting that XPUs now constitute a significant portion of total AI chip revenue.
Looking ahead, Broadcom anticipates strong AI growth for fiscal year 2026, driven by the addition of new customers and continued demand for its AI solutions. The company has secured XPU orders from its fourth customer to the tune of roughly $10 billion, which are expected to impact the second half of fiscal year 2026. CEO Hock Tan's commitment to lead the company through 2030 provides further stability and confidence for investors.
Bull Case:
- Significant growth in AI-related revenue, which surged 63% to $5.2 billion in the third quarter.
- Strong analyst confidence, with major firms like JPMorgan, BofA, and Barclays raising price targets to $400.
- A strategic partnership with OpenAI to mass-produce proprietary AI chips, solidifying its role in the AI supply chain.
- Designated as a top pick in the semiconductor sector by JPMorgan, citing strong results and a solid outlook.
- Expanding custom AI chip lineup with a fourth major customer, indicating growing market trust and demand.
Bear Case:
- Heavy reliance on the AI sector for continued growth, exposing the company to the volatility of this competitive market.
- Despite numerous upgrades, some analysts maintain a more cautious ‘Equal Weight' rating, suggesting potential risks are not fully discounted.
- The stock has already experienced a significant price surge, which may limit the potential for substantial near-term gains.
- Execution risk is inherent in scaling up production for new, large-scale custom chip partnerships like the one with OpenAI.
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