Broadcom(NASDAQ: AVGO) provides chips and software solutions for servers, smartphones, among other enterprise and consumer markets, but growing investment in data centers for artificial intelligence (AI) infrastructure is emerging as an important long-term growth catalyst.
The stock rocketed nearly 113% over the last year, but JPMorgan analysts see more gains based on Broadcom's opportunity to supply chips for Alphabet's Google and Meta Platforms over the next few years.
Earlier this week, the investment firm maintained an overweight (buy) rating on the shares with a $1,700 price target, representing a nearly 29% upside in the next 12 months over the current share price.
Is Broadcom stock a buy?
Broadcom has a history of making investments in areas that it believes offers the most profitable growth over the long term. Within its chip business, AI revenue quadrupled year over year to $2.3 billion in 2023's fourth quarter. Demand from Google and Meta could help Broadcom reach $9 billion in AI revenue this year, according to the analysts.
That could be just the start, as JPMorgan believes Broadcom is positioned for more chip wins from these customers over the next few years. The Wall Street consensus expects Broadcom's earnings per share to reach $65 in 2026. If the stock is still trading at a forward price-to-earnings ratio of 28 in two years, that would put the stock price at $1,820.
It's difficult to say if the stock can surge another 28% to reach $1,700 in the next year, especially on top of its recent gains. But over the next few years, it's very possible.
Keep in mind, Broadcom's broadband business has been navigating a slowdown in demand over the last year. As this business recovers, it will pad the company's growth and provide an additional catalyst for shareholder returns.
Should you invest $1,000 in Broadcom right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, JPMorgan Chase, and Meta Platforms. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
