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Broadcom Chipping Away at Market Share in 5G

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The new era in broadband, 5G, has had consumers clamoring to access the bandwidth, and industries attempting to meet that demand. The semiconductor and infrastructure software firm Broadcom Inc. (AVGO) is planning on capturing some of that market share in the near future, as well as increasing its free cash flow to aide in its “hunt” for mergers and acquisitions (M&A). (See Broadcom stock charts on TipRanks)

Declaring his bullish thesis on the company and its outlook is Vijay Rakesh of Mizuho Securities, writing that he continues “to see AVGO well positioned, with leadership in growing markets driven by secular trends, 5G, and data center, high margins, and strong [free cash flow].”

Rakesh reiterated his Buy rating on the stock, and raised his price target to $545 from $520. This new target suggests a potential 12-month upside of 10.24%.

The five-star analyst explained that with more free cash flow, the firm could focus on M&A for inorganic growth. If no deals are to be made by the end of FY2021, he expects the multinational company to initiate share repurchases in order to return value to shareholders.

While Broadcom recently reported its Q2 earnings in-line with Wall Street consensus estimates, it saw its networking metrics rise 19% year-over-year on 5G expansion projects for telecommunication providers, and has been seeing a rebound in deals from large enterprises. Furthermore, Rakesh expects the firm’s wireless metrics to accelerate due in part to the iPhone 13 launch, anticipated this month.

Quarter-over-quarter, AVGO’s inventory is up 16%, providing it with just the right amount of supply to drive strong output through Q3. The company is aware that too much inventory is negative and it is “monitoring demand” to avoid this issue.

Demand, however, is strong, with Broadcom seeing “aggressive procurement from OEMs in auto, robotics, and renewable energy.” Along with this, growth drivers are indicated by the strong interest from hyperscalers in data centers in AVGO’s Trident Tomahawk 4 chips.

On TipRanks, AVGO has an analyst rating consensus of Strong Buy, based on 19 Buy and 2 Hold ratings. The average Broadcom price target is $571.44, representing a possible 12-month upside of 15.59%. AVGO closed trading Wednesday at a price of $494.38 per share.

Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article.

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