Bank of America analysts raised their price target on Broadcom (NASDAQ:AVGO) shares from $2,000 to $2,150, citing its “transformation to growth from a value stock driven by growing AI and VMWare contributions.
Historically, AVGO’s traditional semiconductor and software segments grew at a normalized pace of 5% to 10%. Bank of America now expects growth to double to a compound annual growth rate (CAGR) of 13% from 2024 to 2026, “led by 24% CAGR across AI silicon and VMWare that could soon account for over half of sales.”
“In our view, AVGO’s diverse growth drivers, highly regarded management team, and unique track-record of capital appreciation, dividend growth and above mkt. div yield can justify a premium multiple,” analysts said in a note.
“Despite being the #8th largest stock in the S&P 500, AVGO’s institutional ownership, per Bank of America’s Strategy team, remains well below market weight,” they added.
Broadcom's trailing 43% free cash flow (FCF) is second only to Nvidia (NASDAQ:NVDA) in the semiconductor sector. It also leads the industry with a combination of 15% annual dividend growth and an above-market indicated dividend yield of 1.25%.
Bank of America said potential risks to its bullish thesis include any sentiment shifts in the AI theme, as well as customer concentration, rising NVDA competition, and the company’s large $60 billion net debt.