Why Broadcom's stock could book its biggest gain in four years

By Emily Bary

Broadcom on track to add more than $80 billion in market cap as analysts say its AI forecast looks conservative

Broadcom Inc. shares are on track to record their biggest single-day percentage increase in four years in the wake of an earnings report that drew cheers across the board.

The stock earlier on Thursday flirted with levels that would have translated to its best one-day performance on record, though it's since pared gains. It recently changed hands up 12.1%, which would be the biggest percentage rally since a 15.8% increase seen on March 19, 2020. Current gains would translate to an $84 billion market-capitalization boost if they hold through Thursday's close.

See more: Broadcom shares surge as company follows Nvidia's lead with plans for a stock split

"AI and software revenue upside was good to see - with this story coming together fast as key customers raise AI [capital-expenditure] forecasts," Melius Research analyst Ben Reitzes wrote in a note to clients.

While Broadcom upped its forecast for AI revenue this fiscal year by over $1 billion, Reitzes thinks the new target for upwards of $11 billion in such revenue "still seems extremely conservative."

"We see this guide as one that leaves a lot of room for upside and it remains the main figure investors care about," he added. "It is clear to us that key customers like Meta and Google are shifting even more spending toward accelerators and Ethernet-based clusters into CY25."

Reitzes' own forecast calls for $12 billion in AI revenue in fiscal 2024. He has a buy rating and two-year price target of $2,050 on the stock. His earlier target was $1,850.

Evercore ISI's Mark Lipacis also saw Broadcom's forecast as conservative "based on our view that AVGO is ramping two new custom AI silicon customers, that appear to give it excellent mid-term visibility into an AI driven revenue stream on the processor side, while at the same time it also appears that its Ethernet solutions are also gaining traction in AI-data centers."

Additionally, he thinks the company is doing a better job than expected of integrating VMware into the business. "Consistent with previous acquisitions, we believe the company is in the process of finding better revenue and cost synergies than it had previously announced," he wrote.

Lipacis raised his target price on Broadcom shares to $2,010 from $1,620. He rates the stock at outperform.

Cantor Fitzgerald's C.J. Muse remains enthused about Broadcom's prospects as well.

"Put it all together and Broadcom's fundamentals should push higher from here led by AI, a cyclical recovery in the non-AI semiconductor businesses, and a continued acceleration in VMware revenues," he wrote.

Read: What Nvidia's stock split means for investors

Plus, the company plans to conduct a 10-for-one stock split "that will be well-received by some," he wrote. Shares will start trading on a split-adjusted basis upon the market open on July 15.

Muse boosted his target price on Broadcom shares to $1,875 from $1,600, while keeping an overweight rating.

AI was a highlight of the report despite "difficulties elsewhere," according to Jefferies analyst Blayne Curtis. "Overall, AVGO expertly navigated a sizable cyclical correction in much of the business and should benefit from continued AI ramps and a cyclical recovery elsewhere," he wrote.

Curtis acknowledged that the broadband business remains weak, while server storage connectivity could see a "modest" rebound in the second half of the year.

He rates the stock a buy with a fresh target of $2,050, up from $1,550.

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-Emily Bary

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06-13-24 1315ET

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