This top data center play has delivered outstanding returns to investors over the past two years.
Broadcom (AVGO 0.34%), an infrastructure technology leader, has delivered market-smashing returns to investors in recent years. Despite a recent dip in the share price, analysts at TD Cowen believe investors should stay the course.
The firm recently adjusted its price target to $210, down from $1,750, to account for the recent 10-for-1 stock split. The shares trade around $155 at the moment after hitting a 52-week high of $185 this year. Here’s why TD Cowen believes Broadcom stock can hit new highs over the next 12 months.
Why it’s not too late to buy Broadcom stock
Broadcom is seeing strong demand for its artificial intelligence (AI) networking and semiconductor solutions in the data center market. Revenue grew 12% year over year in the fiscal second quarter ending May 5, which excludes the revenue contribution from last year’s acquisition of VMware. Including VMware’s revenue, Broadcom’s total revenue was up 43% over the year-ago period.
TD Cowen analysts like Broadcom because of its broad exposure to several markets, including data centers, AI infrastructure, telecommunications, and enterprise. Spending on data center infrastructure is growing rapidly as companies scramble to get ahead in AI technology, which should continue to drive strong growth for Broadcom’s business for the foreseeable future.
The stock trades at a forward price-to-earnings (P/E) ratio of 33, but TD Cowen says the premium is worth it. One reason is because of Broadcom’s software opportunity; its infrastructure software revenue nearly tripled year over year last quarter to $5.7 billion.
Broadcom is in the process of transitioning all of VMware’s products to a subscription model, which could benefit margins and earnings growth. The Wall Street consensus expects the company’s earnings to increase at an annualized rate of 17% over the long term. This could potentially double the share price within five years, assuming the stock continues to trade at the same P/E multiple.
For these reasons, it’s possible Broadcom could hit TD Cowen’s price target within the next few years, if not sooner.