From a sheer numbers perspective, Broadcom Corporation (NASDAQ:AVGO) is one of the most AI-leveraged companies in the semiconductor space, analysts at UBS said as they maintained their ‘Buy’ rating and $925 12-month price target on the company following the release of its second-quarter results.
“The AI feeding frenzy from cloud customers appears to be more than offsetting weakness in AVGO’s enterprise customers so this is removing a big perceived overhang on the stock given recent commentary from major networking OEMs (original equipment manufacturers),” the UBS analysts wrote in a note on Friday.
“Most of its AI exposure is Google related, but we think this is broadening with new wins at customers like META in addition to its leading merchant portfolio (Jericho 3) that is also benefiting from the growth in AI workloads.”
While the jury is still out as to just how much of the chipmaker’s traditional (non-AI) networking business is likely to see some cannibalization from AI, the UBS analysts said they are increasingly coming to the conclusion that hyperscaler capex budgets are going to have to expand - potentially considerably - which will create more of a rising tide.
Baird raises price target
Over at Baird, analysts reiterated their ‘Outperform’ rating on Broadcom, while lifting their price target to $900 from $700, citing the growing contribution AI is making to its revenue, from 15% in full-year 2023 to an expected 25% in FY24.
“Lead times remain extended to almost one year, a strong indicator of order and price stability and a key reason for our ongoing bullish thesis on semis,” the Baird analysts wrote.
“Broadcom sees near-normal inventory levels at customers. Our expectation for a reacceleration in server units this second half should benefit the top line, driven by Networking (AI).”
Baird noted that the company expects to close its acquisition of cloud computing firm VMware this year, which the UBS analysts said would be highly accretive and open up significantly more headroom for its dividend too.
Broadcom’s shares were 1.2% higher at $807.56 shortly before midday on Friday.
Contact the author at stephen.gunnion@proactiveinvestors.com