The semiconductor specialist rode the wave of artificial intelligence (AI) to new heights.
Shares of Broadcom (AVGO 2.20%) were off to the races last month, soaring 21% in June, according to data from S&P Global Market Intelligence.
The semiconductor specialist delivered robust financial results and made an announcement that boosted investor sentiment.
A beat and raise courtesy of the AI revolution
Early last month, Broadcom kicked off the festivities with the results of its fiscal second quarter, which ended May 5, and investors cheered. Revenue grew 43% year over year to $12.5 billion, resulting in adjusted earnings per share (EPS) of $10.96, a 6% increase. The company surpassed Wall Street’s expectations on both the top and bottom line, helping propel the stock higher.
The results were buoyed by the accelerating adoption of generative artificial intelligence (AI), highlighted by strong demand from its hyperscale cloud computing customers. Broadcom noted that AI-related revenue soared 280% year over year to $3.1 billion and now makes up 25% of the company’s total revenue.
It also joined the growing fraternity of companies initiating a stock split to reduce the cost of its shares. Following Nvidia‘s example, Broadcom announced a 10-for-1 stock split scheduled to take place later this month. After the market closes on Friday, July 12, shareholders will receive nine additional shares for every one they own. The stock will begin trading on a split-adjusted basis when the market opens on Monday, July 15. Management noted that the move was “to make ownership of Broadcom stock more accessible to investors and employees.”
The company had more in store for investors, increasing its forecast in the wake of its strong financial performance. Management is now guiding for full fiscal-year revenue of $51 billion, up from $50 billion, and expects AI-related revenue of more than $11 billion. Furthermore, CEO Hock Tan admitted on the earnings call that its guidance regarding AI was conservative and was probably a worst-case scenario.
Following the company’s blockbuster performance, there was a tidal wave of positive commentary from Wall Street. Since Broadcom’s report, 20 analysts have boosted their price targets on the stock.
The most bullish among those is Bank of America analyst Vivek Arya, who maintained a buy rating on Broadcom stock and raised his price target to a Street-high $2,150. That represents a 31% potential gain for investors from Monday’s closing price. The analyst believes Broadcom will generate earnings per share of $69 by fiscal 2026, which would represent a forward price-to-earnings (P/E) ratio of 24, a discount to a multiple of 28 for the S&P 500.
A long runway for growth ahead
The proliferation of AI has only just begun, and Broadcom holds a unique position within the AI ecosystem. The company’s custom accelerators, networking, switches, and ethernet solutions are the top choice among seven of the top eight hyperscalers, offering cloud infrastructure and data center services. These users have been bulking up their systems to meet the demands of generative AI.
That opportunity, combined with the stock’s attractive price, makes Broadcom stock a buy.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.