Broadcom (AVGO -2.18%) hasn't gotten as much attention as some other artificial intelligence (AI) stocks, but the company expects to see demand for chips ramp up due to the increase in generative AI-driven infrastructure.
Broadcom does a lot of things and it has been a prolific acquirer over its history, recently taking over VMware. Among its specialties are custom chips and networking chips. Both categories are likely to see a spike in demand from artificial intelligence, and at least one analyst seems to be taking notice.
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Melius initiates Broadcom with a buy rating
Melius Research just kicked off coverage on Broadcom with a buy rating and a price target of $1,850, representing upside of 31% from its closing price on Wednesday.
The research company called Broadcom a "must-own AI stock," noting its leadership in several chip categories, which account for 30% of revenue, and it was also bullish on the impact of VMware as it gains more subscriptions.
The company has a history of cutting costs after acquisitions and looks set to run that playbook on VMware.
Can Broadcom keep climbing?
Broadcom has already been a winner in the AI boom with the stock up more than 150% since the start of 2023. However, the business has yet to reflect that.
In its fiscal first quarter, which ended in February, the company reported organic revenue growth of 11% as it experienced some tailwinds from AI as well as headwinds from the earlier slowdown in the semiconductor sector.
However, the company is expecting a significant jump in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year to $30 billion due in part to the impact from acquiring VMware.
Broadcom now trades at just over 30 times earnings. If the company can capitalize on the AI boom and show accelerating revenue growth, the stock should continue moving higher.
