AI popular stock Broadcom previously announced financial results showing that its second fiscal quarter performance significantly exceeded expectations and raised its full-year financial guidance. Bank of America reiterated its buy rating for Broadcom on Thursday, stating that the company is poised to enter the "trillion-dollar club." Broadcom's stock price surged by 15% at one point during trading on Thursday.
Bank of America raised its target price for Broadcom from $1,680 to $2,000 on Thursday, which implies a nearly 34% increase from Wednesday's closing price of $1,495.51.
Broadcom's current market value is around $693 billion. If it breaks through the $1 trillion mark, Broadcom will be in the same league as companies like Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta Platforms, entering the "trillion-dollar club."
The bank's analysts indicated that Broadcom's stable semiconductor sales and its exposure across multiple long-term product cycles could help it achieve this goal.
Broadcom's strong second fiscal quarter performance exceeded Wall Street's expectations. Broadcom also announced a 10-for-1 stock split, effective on July 15. Analysts believe that stock splits for expensive stocks are often a positive signal for stock performance. Bank of America stated that the average return one year after a company announces a stock split is 25%, significantly higher than the S&P 500's average return of 12%.
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On Thursday, Broadcom's stock price hit a daily high of $1,735.85 at the beginning of trading, rising nearly 16.1% intraday, and then maintained a gain of over 10%, showing a continued trend to set a new closing historical high. Year-to-date, Broadcom's stock price has increased by about 34%.
Bank of America's analysts' new target price envisions the stock trading at the high end of its historical range and at a premium level relative to some peers. The analysts stated that this premium is "justified, as Broadcom's earnings per share (EPS) growth is in the double digits, and it has the best profitability, free cash flow generation, and return on investment in the semiconductor industry."
The analysts pointed out that the demand for Broadcom's chips is not limited to the AI sector, and the company has taken measures to repay its debt.
"We rate Broadcom as a buy due to its high-quality diversified exposure in the long-term product cycles of the smartphone, cloud data center, telecommunications, and enterprise storage markets. Furthermore, Broadcom's EBITDA and free cash flow (FCF) profit margins exceed 45%, making it one of the most profitable semiconductor companies, which is expected to continue driving strong cash returns."
In addition to Bank of America, more than ten other financial institutions have also raised their target prices for Broadcom.Broadcom's current trading price-to-earnings (P/E) ratio is about 28 times expected earnings, compared to around 40 times for NVIDIA and competitor Marvell Technology.
Morningstar analysts stated, "We continue to believe that Broadcom is in a very favorable position to benefit from the long-term growth in generative artificial intelligence investments."
GraniteShares, which holds Broadcom shares through an ETF, had this to say from their Chief Revenue Officer, Paul Marino: "After this stunning earnings report and the announcement of a 10-for-1 stock split, if you don't own Broadcom stock, then you have a massive hole in your investment portfolio."