Broadcom stock has already risen by nearly half this year, but it can trade even higher fueled by growth in revenue related to artificial intelligence, a William Blair analyst says.
Broadcom is the market’s second-favorite AI chip play behind Nvidia. Its shares have gained 46% this year given its position as one of the leading players designing chips for companies such as Alphabet’s Google unit and Meta Platforms, which are all-in on building enormous AI data centers.
In its latest call to discuss earnings, earlier this month, management said it is targeting $12 billion in AI revenue for the 2024 fiscal year, which ends in October, up from $11 billion earlier. There was no numerical forecast for next year, but the company expects continued “strong growth.”
On Wednesday, in a research note, William Blair’s Sebastien Naji wrote that he sees “room for continued steady growth going into fiscal 2025 and 2026” for AI revenue, driven partly by increasing demand for custom chips, among other factors.
The stock trades at 26 times the $6.18 per share William Blair expects Broadcom to earn in fiscal 2025. “This is a few turns below the peer group median of 29 times,” Sebastien Naji wrote. “We believe Broadcom shares should trade at a premium as result of its strong alignment with AI tailwinds.”
If investors are willing to pay more per dollar of earnings, it could take Broadcom stock even further from here. William Blair doesn’t keep price targets on stocks, but Naji said the “stock still has room to run.” He began coverage of Broadcom with an Outperform rating.