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Broadcom Stock: A Hidden Opportunity in AI and Traditional Chips?

lovely | September 4, 2024

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Broadcom Inc. (AVGO) is poised for a rebound in its core semiconductor business, excluding its AI-focused operations, according to a recent analysis by Susquehanna. The firm’s traditional chip sectors, particularly in storage and networking, could see renewed strength, which may translate into a boost for Broadcom’s share price.

Susquehanna analyst Christopher Rolland reiterated his “Positive” rating for Broadcom, maintaining a price target of $200. Rolland’s optimistic outlook comes ahead of Broadcom’s scheduled earnings report on Thursday, September 5. He noted that the company could potentially signal a bottoming-out for some areas of its core semiconductor business, a critical indicator for investors looking for value beyond the AI hype.

In early trading on Tuesday, Broadcom shares fell 3.1% to $157.85. However, the dip did not overshadow the broader gains the company has made in 2023. Broadcom has positioned itself as a dominant player in the AI chip market, specializing in high-end application-specific integrated circuits (ASICs) used in artificial intelligence applications. These custom chips are a key part of AI infrastructure for major tech giants, including Google’s parent company, Alphabet (GOOGL).

Rolland emphasized that Broadcom’s AI segment remains robust amid positive demand signals from other key players in the chip industry. “We see upside potential here as reports from Nvidia (NVDA), Marvell (MRVL), and Arista Networks suggest continued strength in AI networking,” Rolland noted. “We expect AI revenue to remain a strong growth driver.”

Broadcom’s performance this year has been impressive, with shares up approximately 42%, significantly outpacing the broader semiconductor market. By comparison, the iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index, is up 15%, while the Nasdaq Composite Index (COMP) has risen 16% during the same period.

Key Takeaways:

  1. Core Business Recovery: Broadcom’s traditional semiconductor business shows signs of bottoming out, which could positively impact its share price.
  2. AI Strength Continues: Broadcom’s leadership in AI chips is supported by continued strong demand signals from the industry, particularly from tech giants like Alphabet and peers like Nvidia and Marvell.
  3. Market Outperformance: Broadcom’s stock performance significantly exceeds broader market averages, demonstrating its strong positioning in both AI and core chip sectors.

Conclusion:

For traders and investors, Broadcom offers a compelling story of growth across both its traditional and AI-focused semiconductor businesses. With signs pointing toward a recovery in its core segments and sustained demand in AI, Broadcom appears well-positioned for further gains. As the company heads into its earnings report, all eyes will be on how management addresses these dynamics and future growth prospects.