Broadcom 2025 Forecast: Will This AI Semiconductor Stock Top $1 Trillion?

Barchart · 10/16 13:00

Among artificial intelligence (AI) chipmakers, $3 trillion giant Nvidia (NVDA) still dominates the conversation, but Broadcom Inc. (AVGO) has emerged as a serious powerhouse in both the semiconductor and software worlds. Its influence in AI investments is undeniable, as the company's AI-driven chips have catapulted it to the top tier of semiconductor stocks capitalizing on the AI boom.

In fact, Broadcom is swiftly climbing the ranks as one of the key players driving AI advancements. Behind the scenes, Broadcom powers tech giants like Apple (AAPL), Samsung, Alphabet (GOOG), and Amazon (AMZN), delivering broadband, networking, and wireless solutions with unparalleled efficiency. Broadcom's networking chips are already the backbone of AI infrastructure, and the company's influence is only set to grow.

In the coming years, big tech giants like Alphabet and Meta (META), who are already heavily investing in custom silicon from Broadcom, are likely to deepen their reliance on its cutting-edge AI accelerators. As AI demand skyrockets, Broadcom is fast becoming the go-to partner for powering the next generation of tech innovation, drawing in massive attention from investors over the past year.

Valued at around $819 billion, AVGO is within striking distance of achieving a $1 trillion market cap. As Broadcom's technology powers the next wave of AI breakthroughs, can the chip giant achieve this historic milestone by next year? Let’s take a closer look to find out.

About Broadcom Stock

Palo Alto-based Broadcom Inc. (AVGO) is a global technology leader renowned for its extensive range of semiconductor, enterprise software, and security solutions. With a category-leading product portfolio, Broadcom serves vital markets such as cloud, data centers, networking, broadband, wireless, storage, and industrial. The company’s offerings encompass everything from service provider and enterprise networking to mobile connectivity, mainframe systems, cybersecurity, and private and hybrid cloud infrastructure, making it an indispensable player in the tech landscape.

AVGO stock has been on a remarkable run, soaring 96.7% over the past year and 59% on a YTD basis. This breakout performance far outpaces the broader S&P 500 Index’s ($SPX) gains of 33.4% over the past year and 22.3% in 2024.

Amid this week’s volatility in semiconductor stocks, AVGO is down about 5% from its newly set Oct. 9 all-time high of $186.42.

AVGO may appear pricey at first glance, trading at 36.30 times forward adjusted earnings and 15.93 times sales. However, it’s a discount to industry leader Nvidia, which trades at 46.29 times forward adjusted earnings and 25.70 times sales.

Broadcom also offers a reliable dividend payout. With a 13-year streak of consecutive dividend increases and a healthy 54.72% dividend payout ratio, the company is a solid pick for investors seeking passive income.

Based on the current quarterly dividend of $0.53 per share, AVGO yields 1.20% at current levels. Plus, the company is committed to buybacks, too - which makes Broadcom an enticing option for investors seeking both stock appreciation and a commitment to rewarding shareholders.

Broadcom Slides After Q3 Earnings

Broadcom delivered an impressive performance in its Q3 earnings report on Sept. 5, blowing past Wall Street’s expectations with net revenue of $13.1 billion, up 47.3% year over year. Adjusted EPS rose 19.1% to $1.24, which also exceeded forecasts.

During the quarter, the semiconductor solutions segment was a standout performer, generating a remarkable $7.3 billion in revenue and accounting for over 50% of the company's top-line figure. This growth is a testament to Broadcom's critical role in powering essential technologies across various sectors.

The infrastructure software segment also demonstrated explosive growth, skyrocketing by an astonishing 200% to reach $5.8 billion, up from just $1.9 billion a year earlier. This surge highlights Broadcom's strategic investments in software solutions, which are increasingly vital in today’s digital landscape. By the end of Q3, Broadcom held cash and cash equivalents totaling an impressive $9.95 billion, up from $9.81 billion at the end of the previous quarter.

Commenting on the Q3 performance, CEO Hock Tan said, “Broadcom's third quarter results reflect continued strength in our AI semiconductor solutions and VMware. We expect revenue from AI to be $12 billion for fiscal year 2024 driven by Ethernet networking and custom accelerators for AI data centers."

Additionally, CFO Kirsten Spears pointed out that free cash flow, excluding restructuring and integration costs, climbed 14% year-over-year to $5.3 billion, showcasing the company’s strong operational efficiency.

However, despite this overall impressive performance, Broadcom’s shares took a hit, cratering more than 10% on Sept. 6. The decline was primarily attributed to the company’s conservative guidance for Q4, with management projecting revenue of around $14 billion, slightly below analysts’ expectations of $14.04 billion.

What Do Analysts Expect For Broadcom Stock?

Overall, Wall Street is highly optimistic about AVGO stock, which has a consensus rating of “Strong Buy.” Of the 33 analysts in coverage, 30 advise a “Strong Buy,” and three maintain a “Hold.”

Earlier this week, Mizuho Securities raised its price target on Broadcom from $190 to $220, highlighting the company's strong position in AI.

In a note, analyst Vijay Rakesh predicted that Broadcom's custom silicon business could unlock a $16 billion opportunity if it secures OpenAI's chip business by 2025 or 2026. The analyst also cited potential wins from Amazon Web Services (AWS) and Google for their custom silicon projects.

Rakesh's newly raised price target suggests expected upside potential of around 23.5% from current prices, and implies a market cap of over $1 trillion for Broadcom. The mean price target for AVGO on Wall Street is more modest, at $194.07 - about 9% north of current levels.

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On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.