Broadcom (NASDAQ:AVGO) was reinstated to an Overweight rating by Barclays as the firm sees them well positioned to cash in on the “second wave of AI.”
“Outside of AI, the company is seeing many of the same cyclical downturns as Semi peers but a growing software business helps boost profitability and FCF generation,” O’Malley notes. “In the near term, AI is all that matters and the custom silicon/switching businesses are driving a significant portion of near-term growth.”
That growth is projected to hit the mid- to high-20% range next year and accelerate longer term. This has prompted Barclays to set Broadcom’s price target at $1,405.
Broadcom’s custom silicon looks to take advantage of growing demand in the years ahead, particularly in the specialized AI market.
“Additionally, with Nvidia (NVDA) as dominant as they have been in the early days of AI, we have seen an above-trend rate of InfiniBand deployments, which we believe reverts to traditional Ethernet over time,” O’Malley adds. “The return to a more classic network architecture should be a further tailwind for the switching business.”
This development would help drive sales of Broadcom’s Tomahawk 5, a high-bandwidth network switching device, as AI server clusters become networked scale, Barclays finds.
However, Barclays does not see near-term acceleration in the growth of Broadcom’s server/storage/connectivity businesses this year. Its wireless segment will also likely not see a boon until the introduction of 6G later this decade.
Analysts appear mostly bullish on Broadcom and its opportunities in AI. It has a BUY rating from both Seeking Alpha analysts and Wall Street analysts, while Seeking Alpha’s quant system rates it a HOLD.
