Is Broadcom Stock Going to $220 on the Heels of Its 10-for-1 Stock Split? 1 Wall Street Analyst Thinks So
Interest in artificial intelligence (AI) has mushroomed over the past couple of years, and the trend has vast implications for the entire technology sector.
Broadcom (NASDAQ: AVGO) is a particularly important player in the space, as its semiconductors and data center technology play crucial roles in the AI ecosystem. That position has propelled the company's market cap upward by more than 100% over the past year, and prompted it to implement a high-profile 10-for-1 stock split.
In the wake of the company's better-than-expected fiscal third-quarter results last month, Wall Street is getting more bullish, resulting in a host of higher price targets. One of the more recent target hikes is particularly intriguing.
Custom AI chips
Mizuho Securities analyst Vijay Rakesh maintained his outperform (buy) rating on Broadcom stock while increasing his price target to $220. That would amount to a gain of 21% over the coming 12 to 18 months from the stock's closing price on Friday.
Rakesh believes that the company's AI opportunity isn't fully baked into the current stock price. More specifically, Broadcom's custom silicon business -- which features application-specific integrated circuits (ASICs) -- allows its customers to create differentiated solutions to meet their specific needs. The analyst believes that opportunity could be worth $16 billion or more annually to Broadcom. Overall, the market for ASICs is expected to top $56 billion in the coming years, making it a large and growing opportunity.
I think the analyst has clearly done his homework. In its fiscal 2024 third quarter (which ended Aug. 4), Broadcom's revenue grew 47% year over year, thanks to strong contributions from the company's AI chip solutions, AI data center networking products, and custom accelerators.
Broadcom stock currently trades for 37 times forward earnings. While that might seem like a lofty valuation at first glance, it's an attractive price for a stock that had gained 2,530% over the past decade.
The road ahead is long, which is why Broadcom is a buy.
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Is Broadcom Stock Going to $220 on the Heels of Its 10-for-1 Stock Split? 1 Wall Street Analyst Thinks So was originally published by The Motley Fool