Broadcom Surges on AI Chip Strength, Raises Forecast (BRO)

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Broadcom surged about 15% after issuing an optimistic annual forecast, reflecting strong demand for its AI-focused technology chips. The announcement of a stock split further fueled investor excitement. The rising adoption of generative AI has boosted demand for Broadcom’s chips and networking tools, which are essential for these intensive applications. Broadcom’s shares have climbed 76% in the past 12 months, closing at $1495.5 on Wednesday. The company followed Nvidia’s lead by announcing a 10-for-1 stock split to make its shares more affordable.

Analyst Dennis Dick from Triple D Trading commented that this move is a proven strategy to elevate stock prices, mirroring Nvidia’s playbook. If current gains persist, Broadcom’s market value could increase by about $100 billion. Over 12 brokerages have raised their price targets for the stock. Broadcom is now trading at approximately 28 times its expected earnings, compared to Nvidia’s price-to-earnings ratio of about 40 and Marvell Technology’s similar valuation.

On Wednesday, Broadcom increased its annual revenue forecast from AI-linked chips to $11 billion from $10 billion and also raised its overall annual revenue and core profit projections. Broadcom will produce the next generation of custom AI chips for major clients, likely Alphabet’s Google and Meta Platforms. The company added a third custom AI chip customer in March. Morningstar analysts believe Broadcom is well-positioned to benefit from the long-term growth in generative AI investment.

Broadcom’s software division, bolstered by the acquisition of VMware, contributed $2.7 billion to second-quarter revenue. Paul Marino, chief revenue officer of GraniteShares, emphasized the importance of holding Broadcom stock, highlighting its impressive earnings report and stock split announcement. Broadcom’s strategic moves and robust performance underscore its pivotal role in the burgeoning AI technology sector, making it a compelling investment opportunity.