Analyst Confidence Skyrockets in Broadcom: A Glimpse into Its Lucrative AI Future?

Citigroup analyst Christopher Danely reinstated Broadcom Inc AVGO with a Buy and a $1,100 price target. The stock closed higher by $95 on Monday following the re-rating.

The stock closed at $1,029.24, marking its highest price in a year. Citigroup's decision to resume coverage was influenced by Broadcom's strong core business performance and the beneficial impact of its recent acquisition of VMware in November, which aimed to enhance its cloud technology infrastructure offerings, CNBC reports.

Broadcom is actively engaging in the artificial intelligence (AI) sector, collaborating with companies like Alphabet Inc GOOG GOOGL Google, and Comcast Corp CMCSA to develop chips and infrastructure for AI applications, such as Google's custom tensor processing unit. 

Despite these efforts, Broadcom is not a direct competitor to Nvidia Corp NVDA in the field of GPUs for training advanced generative AI models like those used by OpenAI's GPT.

Citigroup's positive outlook on Broadcom stems from its potential to capitalize on the AI boom. 

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Analysts predict Broadcom's AI infrastructure sales will double from $4 billion in FY23 (11% of FY23 sales) to over $8 billion in FY24 (17% of FY24 sales).

Broadcom also reported solid earnings for its fiscal fourth quarter last Thursday. Broadcom reported upbeat earnings for its fourth quarter and increased its quarterly dividend by 14% to $5.25.

Broadcom reported quarterly earnings of $11.06 per share, exceeding analyst expectations of $10.98, a 5.84% increase over earnings of $10.45 per share from last year. 

The company reported quarterly sales of $9.29 billion, missing the Street's estimate of $9.41 billion. This reliable financial performance further bolstered investor confidence in the company.

Price Action: AVGO shares traded higher by 0.75% at $1,037.01 premarket on the last check Tuesday.