Looking for another “picks-and-shovels” play in artificial intelligence?
Wall Street analysts are pointing to Broadcom (ticker: AVGO) as the next likeliest chip maker after
Nvidia
(NVDA) to benefit from the surge of demand for AI infrastructure.
Broadcom
expects AI-related revenue to rise to roughly $7.5 billion next fiscal year. If Broadcom hits those projections, then the semiconductor supplier would be the second largest firm in the sector, trailing Nvidia and beating out rivals such as
Intel
(INTC),
Advanced Micro Devices
(AMD) and
Marvell
(MRVL), according to J.P. Morgan analysts.
The analysts note that Google, and its parent
Alphabet
(GOOG), is already a customer for Broadcom’s AI processors, worth more than $2 billion in revenue. Facebook-owner
Meta Platforms
(META) is expected to follow within the next two years, the analysts said. They don’t have a rating or price target on shares.
A swath of analysts raised their price targets on shares based on Broadcom’s AI potential. Benchmark Research boosted its price target to $950 from $770, SIG Susquehanna Financial Group lifted its target to $910 from $785, Mizuho Securities raised theirs to $840 from $720, and Truist Securities upped its to $890 from $700.
Broadcom shares were 3.2% higher Friday, at $814.81.
One particular concern for Broadcom has emerged, though. The shift toward AI might disrupt some of the company’s current business for traditional data centers. The analysts at Truist Securities who bumped up their price target said in a research note that the cannibalization of existing revenue might mean AI adds around 2% to Broadcom’s long-term semiconductor sales growth.
The company’s executives said it was too early to tell if AI would cannibalize its current business.
“In addition to AI, AVGO continues to do well in many other respects: It’s keeping lead times (perhaps artificially) elevated at 50 weeks, its inventory is under solid control, customer and channel inventory appear lean, and buybacks are strong,” the Truist analysts, who have a Buy rating on shares, wrote.
Write to Adam Clark at adam.clark@barrons.com
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