Broadcom (NASDAQ: AVGO) has experienced an impressive 96% surge in its stock price over the past year, driven primarily by soaring demand for its AI chips. This growth trajectory has positioned Broadcom not just as a value stock but as a prominent growth contender in the semiconductor industry.
According to Bank of America analyst Vivek Arya, who ranks among the top Wall Street stock pros, Broadcom is poised for sustained momentum. Arya highlights several key factors contributing to Broadcom’s bullish outlook. Historically, Broadcom’s traditional semiconductor and software segments have grown at a modest pace of 5-10% annually. However, Arya predicts a significant inflection point, with these segments expected to grow at a doubled rate of 13% CAGR from FY24 to FY26. This growth will be driven by robust 24% CAGR in AI silicon and VMware, potentially accounting for over half of Broadcom’s sales.
Moreover, Arya anticipates that cost synergies from VMware integration and efficient balance sheet management will lead to a substantial expansion in Broadcom’s pre-financial EBIT margins, targeting an increase of 400 basis points to 61%. This operational efficiency is forecasted to drive earnings per share (EPS) growth at a compounded rate of 20% annually.
Broadcom’s strengths extend beyond financial metrics. Arya underscores its diverse growth drivers, effective management team, strong historical performance in capital appreciation, consistent dividend growth, and a superior dividend yield compared to peers in the semiconductor sector. Despite being the tenth largest stock in the S&P 500, Broadcom’s institutional ownership remains below market weight, suggesting room for increased investor participation.
Looking ahead, Arya envisions Broadcom’s EPS potential reaching up to $80 per share by FY26, supported by robust sales growth and enhanced EBIT margins. This outlook assumes continued market leadership in AI custom chips and networking solutions, alongside a quicker recovery in non-AI traditional semiconductors compared to current projections.
To capitalize on its growth trajectory and capitalize on strategic opportunities, Broadcom may pursue further mergers and acquisitions (M&A) in the near term. Arya notes that Broadcom maintains a conservative leverage profile with gross leverage at 2.4x, allowing flexibility for strategic investments while reducing debt obligations.
Despite its strong prospects, Arya acknowledges potential risks, including overreliance on AI-related revenues, customer concentration (notably with Apple and Google), substantial net debt of $60 billion, and intensifying competition from rivals like Nvidia (NVDA).
In light of these factors, Arya has revised Broadcom’s price target upwards from $2,000 to $2,150, representing a potential upside of 35% from current levels. His reiterated Buy rating reflects confidence in Broadcom’s ability to sustain growth and navigate potential challenges in the semiconductor landscape.
Overall, Wall Street’s sentiment towards Broadcom is overwhelmingly positive, with a Strong Buy consensus based on 22 Buy ratings and just one Hold. Analysts see Broadcom as a compelling investment opportunity, projecting an average price target that implies approximately 20% upside potential over the next year. As always, investors are advised to conduct their own research before making any investment decisions.