Image source: Getty Images
S&P 500 giant Broadcom (NASDAQ: AVGO) has generated underwhelming returns for investors recently. Over the last year, its share price has only climbed about 10%.
Analysts remain very bullish on the AI stock, however. Here’s a look at where Wall Street sees it heading over the next 12 months.
AI is fuelling prolific top-line growth
Broadcom specialises in custom AI chips and data centre networking solutions. And its revenues are growing at a rapid rate amid the global AI boom.
Its latest earnings, for example, showed year-on-year revenue growth of 86% for the quarter ended 2 August. AI semiconductor revenue amounted to $16.7bn, up a whopping 221% year on year, and 54% quarter on quarter.
Looking ahead, management expects the prolific growth to continue in the near term. For the current quarter, it expects total revenue to rise 93%.
Meanwhile, it expects AI semiconductor revenue to hit $21.7bn. That would represent growth of 236% year on year.
“Demand for our custom AI accelerators and networking continues to be very strong.”
Broadcom Q3 FY26 results
The valuation is low
Looking at the company’s valuation, however, this growth really isn’t priced in at the moment. Taking the earnings forecast for the financial year starting in November, the stock’s forward-looking price-to-earnings (P/E) ratio is only 19.
That’s roughly in line with the average forward P/E ratio across the S&P 500. In other words, Broadcom is trading at an average earnings multiple despite the fact that its revenues are climbing 80%-90% year on year.
Analysts are bullish
Given its low valuation, I see the stock as undervalued at the moment. And so do a lot of Wall Street analysts.
Since the most recent earnings, several firms have come out with price targets of $600 or higher. That’s more than 60% above the current share price.
The average price target today is $533. Even that’s more than 40% above the current share price.
So, analysts clearly see an opportunity here. They expect the stock to produce outsized gains over the next 12 months.
The risks
There are no guarantees that it will, of course. Analysts’ price targets should never be relied upon.
One risk to the bull case is a slowdown in AI spending. This could lead to less growth for Broadcom.
Another risk is the loss of a key customer such as Google or Meta. This company is heavily dependent on a handful of mega-cap tech companies.
Competition from rival chip company Marvell Technology is also worth mentioning. It has been having a lot of success in the custom chip space lately.
I see an opportunity
Overall though, I believe the stock looks attractive at current levels given its low valuation. In my view, it’s very much worth considering for an ISA or SIPP.
But it’s not the only tech stock I’m bullish on right now…
Should you invest £5,000 in Broadcom right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Broadcom made the list?
Edward Sheldon owns shares in Broadcom and Marvell Technology.
This story originally appeared on Motley Fool
