There's no getting around the impact of artificial intelligence (AI) in tech circles since early last year, and Broadcom (AVGO 1.19%) is a key player in the space. The company's semiconductors and data center infrastructure play a critical part in the AI ecosystem, which has lit a fire under the stock. Its price has nearly doubled over the past year, resulting in a high-profile stock split.
In the wake of Broadcom's better-than-anticipated results, Wall Street is scrambling to revise its models, resulting in a tidal wave of higher price targets. One should be of particular interest to shareholders.
NASDAQ: AVGO
Key Data Points
AI is driving this train
Analysts at Benchmark reiterated their buy rating while boosting their price target on Broadcom to a Street-high $2,100. That represents a potential upside for investors of 40% over the coming year, compared to the stock's closing price on Wednesday.
The analysts cited Broadcom's "solid" second-quarter financial results and 10-for-1 stock split as "enough to send the Street into a buying frenzy." They went on to point out that Broadcom's increased outlook was modest and its AI guidance "rather conservative."
I think the analysts are onto something. AI is quickly becoming a boon to Broadcom. In the company's second-quarter report, management noted that the results "were once again driven by AI demand," as sales of AI products hit a record $3.1 billion, or 25% of its total revenue.
Despite the robust gains, Broadcom raised its full-year outlook to $51 billion from $50 billion, an increase of about 2%. This suggests management was being cautious, which opens the door for a future beat and raise.
Broadcom stock is currently selling for 35 times forward earnings, which is an attractive price for a stock that has generated gains of 2,230% over the past decade. There's likely more to come, which is why Broadcom is a buy.
