The rally in Broadcom stock has leveled off as doubts set in about the sustainability of the AI boom for any company not named Nvidia.
However, there are still plenty of believers in on Wall Street and analysts at Melius Research are joining the ranks.
Broadcom stock is up 65% over the last 12 months, but is also down nearly 6% over the past three months. Its full-year guidance for revenue of $50 billion, which accompanied its first-quarter earnings back in March, didn’t wow the market and its rally stalled.
However, with Broadcom’s earnings due on June 12, Melius Research’s Ben Reitzes sees reasons to get on board now, and most have to do with artificial intelligence.
“Broadcom is one of the must-own AI stocks due to its leadership as a fabless semiconductor provider across many categories — but its Networking division (30% of revenue) should drive upside with AI accelerators (XPUs) and networking chips largely sold into Consumer Internet companies,” wrote Reitzes in a research note on Monday.
Reitzes launched coverage of the stock with a Buy rating and a $1,850 target price, based on a price-to-earnings multiple of 28 times his forecast for Broadcom in its fiscal 2026 year.
The stock was down 1.5% at $1,308.57 on Monday. The S&P 500 and Nasdaq Composite were down 0.6% and 0.2%, respectively.
Broadcom is the leading player in the high-end AI ASIC — application specific integrated circuits — market. Broadcom helps large companies, such as Alphabet’s Google unit, design custom chips for AI, as well as providing networking chips. At the moment that is a $10 billion-a-year revenue stream for the company but Reitzes sees a real possibility AI-related revenue could grow to $16 billion in 2025, and $20 billion in 2026.
“We believe that the AI revenue could approach $50 billion within an investible time frame, especially if AVGO can add one more customer for custom accelerators (to 4 from 3),” Reitzes wrote.
A company helping its customers develop their own AI chips will run into the seemingly unstoppable force that is Nvidia (both companies also compete in the networking business). The Melius analyst argues that while Broadcom should trade at a discount to Nvidia, there is space for both to thrive.
“We believe we are in a generational shift in market cap away from Enterprise Application Software toward companies like Broadcom that have exposure to semis and stickier infrastructure software,” Reitzes wrote.
Write to Adam Clark at adam.clark@barrons.com