Why Broadcom (AVGO) Stock Is Trading Up Today
What Happened:
Shares of fabless chip and software maker Broadcom (NASDAQ:AVGO) jumped 6.1% in the morning session after Citigroup resumed coverage on the stock with a Buy rating and assigned a price target of $1,100, emphasizing the company's robust core business and anticipated gains from the VMware acquisition. The analysis also highlighted Broadcom's potential to double AI revenue from $4.0 billion in FY23 to over $8.0 billion in FY24.
2023 has been a banner year for AI stocks, from pure-play software platforms to AI chip developers and hardware accelerators. Broadcom combines the best of both worlds via its custom AI accelerator offerings. Its chips help ensure that AI chatbots like ChatGPT or Bard can reply quickly when you ask them something. Because Broadcom's chips are really good at making networks work fast, the company is expected to do well as more people want to use AI technology like ChatGPT.
As a reminder, Broadcom reported Generative AI revenue, driven by Ethernet solutions and custom AI accelerators, of approximately $1.5 billion in FY'23, or 20% of semiconductor revenue. In FY'24, the company expects revenue from generative AI to represent more than 25% of the semiconductor revenue. This highlights the growing momentum in the AI segment, showing that Broadcom is positioned for promising growth in the flourishing AI market.
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What is the market telling us:
Broadcom's shares are somewhat volatile and over the last year have had 7 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the stock gained 8.5% as the company's stock enjoyed bullish sentiments from Wall Street analysts who expect huge potential in the artificial intelligence market. KeyBanc Capital Markets' John Vinh expects Broadcom to benefit in the near-term from its generative AI capabilities--specifically, its TPU product. JPMorgan's Harlan Sur echoed this and praised Broadcom's custom-chip business, which he said is "gaining traction with Google for its cutting-edge AI processor chip, TPU."
Broadcom is up 87% since the beginning of the year. Investors who bought $1,000 worth of Broadcom's shares 5 years ago would now be looking at an investment worth $4,192.
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