Broadcom (NASDAQ: AVGO) is a leading semiconductor company benefiting from the growing demand for chips optimized for artificial intelligence (AI) workloads in data centers. The stock has soared in recent years, and Cantor Fitzgerald analyst C.J. Muse believes the stock will head higher.
Earlier this week, the analyst maintained an overweight (buy) rating on the shares and raised the price target from $200 to $225, which is typically a projection of where the stock can trade in the next year or so. The average recommendation on Wall Street is a buy, with a $194 price target, according to Yahoo Finance. Can the stock climb 25% in the near term to reach Cantor Fitzgerald's target price?
Why Broadcom stock?
Broadcom has delivered solid financial results this year. Revenue jumped 47% year over year last quarter, which includes additional revenue from last year's VMware acquisition. Digging deeper, there are reasons to be optimistic about Broadcom's prospects. It is in the process of converting VMware's cloud software business to a subscription model. Management is aiming to reduce VMware's cost and boost margins, which should contribute to Broadcom's stellar operating profit margin.
Meanwhile, Broadcom management believes the company's non-artificial intelligence (AI) business has hit a cyclical bottom and could be returning to growth. It specifically cited opportunities in the wireless business, where Broadcom is a key supplier for Apple. Guidance calls for 20% sequential growth in wireless revenue next quarter due to the launch of next-generation iPhone devices.
Other markets that Broadcom sells into like telecom and broadband are still weak, but overall, the consensus analyst estimate has total revenue growing 44% this year and 17% next year, according to Yahoo. Earnings are expected to increase by 14% this year before accelerating to 28% next year.
Assuming Broadcom stock continues to trade at the same price-to-earnings ratio, investors should expect the share price to climb along with earnings and reach the analyst's price target in 2025.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
