While Nvidia is the leader in general-purpose processors for artificial intelligence, Broadcom leads in making custom AI chips optimized for specific workloads. Broadcom stock has risen because of its status as the top maker of application-specific integrated circuits, or ASICs, for AI jobs.
Broadcom is likely to keep that leadership position because of its "sticky" relationships with key customers, JPMorgan analyst Harlan Sur said in client note Tuesday.
"Incumbency is a big competitive advantage for Broadcom in its AI ASIC business," Sur said. "Its strong technology capabilities, expertise and IP (intellectual property) should drive increasing customer stickiness on higher chip complexities."
A recent meeting with Broadcom management, including Chief Executive Hock Tan, left Sur confident in the company's near- and mid-term outlook.
Sur reiterated his overweight, or buy, rating on Broadcom stock with a price target of 200.
On the stock market today, Broadcom stock slid 1.2% to 169.38.
AI Chip Business Looks Solid
Momentum in Broadcom's AI chip business appears strong thanks to continued data-center spending by cloud service providers, Sur said.
Broadcom likely has a cumulative revenue opportunity of $150 billion over the next four to five years from its large AI customers, he said. That implies a compound annual growth rate in AI semiconductor revenue of 30% to 40% over that time period.
"The team has created strong barriers to entry in the custom AI ASICs market," Sur said.
Broadcom Stock Gets Price-Target Hike
Meanwhile, Broadcom is seeing improved business in its non-AI semiconductor business, including traditional servers, storage and networking, Sur said.
Elsewhere on Wall Street, TD Cowen analyst Matthew Ramsay raised his price target on Broadcom stock to 210 from 175. He kept his buy rating.
"Overall, we continue to believe Broadcom offers broad revenue exposure to hyperscale, AI, telco, and enterprise," Ramsay said in a client note late Monday. "There are puts and takes in these markets, but big picture, all are investing in compute/networking silicon where Broadcom's portfolio shines."
Broadcom stock is on two IBD lists: the Big Cap 20 and Tech Leaders.
Further, Broadcom has a perfect IBD Composite Rating of 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use score. The best growth stocks have a Composite Rating of 90 or better.
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