Broadcom Inc. (AVGO) Stock: Why Analysts See 46% Upside Potential

TLDR:

Broadcom reported 77% year-over-year growth in AI revenue in FQ1 2025, generating $4.1 billion The company expects AI revenue to increase 44% in FQ2, driven by hyperscale customers investing in next-gen AI models Broadcom unveiled “Incident Prediction,” an AI-powered cybersecurity tool trained on 500,000+ real-world attack chains Total FQ1 revenue reached $14.9 billion, a 24.7% improvement, with infrastructure software sales growing 47% to $6.7 billion Citi maintained a Buy rating while lowering price target from $220 to $210 due to recession concerns and tariff issues

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Broadcom Inc. has been making waves in the tech sector with its impressive financial performance and continuous innovation in AI technology. The company’s latest quarterly results show a robust growth trajectory in AI-related revenue, positioning it as a strong player in the ever-evolving tech landscape.

In the first quarter of fiscal year 2025, Broadcom reported a staggering 77% year-over-year growth in its AI revenue, amounting to $4.1 billion. This exceptional performance underscores the company’s strong position in the AI market and its ability to capitalize on the growing demand for AI solutions.

Broadcom Inc. (AVGO)

Looking ahead to the second quarter, Broadcom expects its AI revenue to increase by 44%. This projected growth is fueled by hyperscale customers who are heavily investing in next-generation AI models.

The company’s total revenue for the first quarter reached $14.9 billion, marking a 24.7% improvement compared to the same period last year. This overall growth reflects Broadcom’s successful expansion across its various business segments.

Infrastructure software sales showed particularly strong performance, growing by 47% to $6.7 billion. This segment has become increasingly important for Broadcom’s revenue mix, especially following the acquisition of VMWare.

Strategic Partnerships and Future Growth

Broadcom is working closely with major hyperscalers to develop systems that will support massive AI clusters. These partnerships aim to create infrastructure capable of handling between 500,000 to 1,000,000 AI accelerators, which could potentially drive the company’s future growth.

According to the Renaissance Large Cap Growth Strategy investor letter, Broadcom is benefiting from its “dominant position in artificial intelligence application-specific chipsets.” The company also continues to leverage its leading position in several end markets including data centers and cloud infrastructure.

Three of Broadcom’s key clients are expected to create a serviceable addressable market (SAM) of $60 to $90 billion by fiscal year 2027. This forecast suggests substantial growth opportunities for Broadcom in the coming years.

Broadcom’s strategic focus on AI and cloud infrastructure aligns well with favorable secular growth trends in these sectors. The company is also experiencing margin expansion and improved visibility as the mix of software revenues increases.

On April 11, Citi analyst Christopher Danely maintained a Buy rating for Broadcom stock while decreasing its price target from $220 to $210. This adjustment was attributed to concerns about a potential recession and the likelihood that certain tariffs will persist long-term.

Innovative AI-Powered Cybersecurity

On April 15, Broadcom announced “Incident Prediction,” an industry-first security capability that leverages artificial intelligence to identify and disrupt cyber threats. This innovative tool has been designed to predict and prevent living-off-the-land (LOTL) attacks and other cybersecurity threats.

The Incident Prediction tool has been trained on a catalog of over 500,000 real-world attack chains. This extensive training enables the system to stop cyberattacks before they happen, providing an unprecedented level of protection.

The inspiration for the Incident Prediction tool came from observing how generative AI can predict the next word when generating text. By applying similar principles to cybersecurity, Broadcom has created a system that can predict the next four or five possible moves attackers will make in a customer’s environment.

Once potential threats are identified, the system can disrupt them and then revert to normalcy right away. This automatic response eliminates the need for security analysts to triage events and figure out mitigation strategies manually.

Broadcom’s innovative approach to cybersecurity represents a significant advancement in the field and highlights the company’s commitment to leveraging AI for practical applications. This could potentially open up new revenue streams for the company in the cybersecurity market.

As of Q4 2024, Broadcom was held by 161 hedge funds, indicating strong institutional confidence in the company’s prospects. This hedge fund sentiment further reinforces Broadcom’s standing as a promising long-term investment.

While the market faces uncertainty due to various factors including policy changes and economic concerns, companies like Broadcom that address fundamental technological needs remain resilient. The ongoing adoption of AI and growing need for cybersecurity continue to drive demand for Broadcom’s products and services.

Broadcom operates in two main segments: Semiconductor Solutions and Infrastructure Software. The company specializes in semiconductor and infrastructure software products, with a focus on digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products.

The stock currently has an average upside potential of 46.2% as of April 21, according to analyst estimates. This suggests that market experts see substantial room for growth in Broadcom’s share price.

Despite short-term market fluctuations and policy uncertainty, Broadcom continues to benefit from long-term demand trends. The company’s diverse product portfolio and strategic focus on high-growth areas position it well for sustained performance.

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