Jefferies Raises Broadcom Price Target to $315: 19% Upside Ahead

Key Points

• A Jefferies analyst didn't think their $300 price target on Broadcom was enough. They now think shares could exceed this mark by $15.
• Networking chip relationships could buoy Broadcom's hopes of converting potential ASIC customers. This is key to unlocking the next rally.
• Tomahawk 6 is Broadcom's latest innovation that investors shouldn't sleep on as data center needs shift.

Broadcom NASDAQ: AVGO just got a new price target that signals significant upside ahead for the stock. On Monday, Blayne Curtis of Jefferies reiterated his buy rating on the chip giant and boosted his price target from $300 to $315. As of the July 1 close, Broadcom trades at just under $265 per share.

Meanwhile, the MarketBeat consensus price target on Broadcom is just over $281. This average target implies only around 6% upside in shares. However, Curtis is significantly more optimistic. His new target suggests Broadcom could rise three times more, implying nearly 19% upside.

One key part of Curtis’s analysis stands out when it comes to the possibility of Broadcom stock eclipsing the $300 mark.

Broadcom’s AI Chips: How Networking Can Help Lead the Stock to New Highs

Broadcom’s application-specific integrated circuits (ASICs) and networking chips make up its all-important AI semiconductor business line. ASICs are the chips that Broadcom develops for AI training and inference workloads. They are competitors and complements to NVIDIA’s NASDAQ: NVDA ever-popular graphics processing units (GPUs), depending on the context.

ASIC sales are what the market really looks at when deciding whether to upgrade or downgrade Broadcom. Meanwhile, Broadcom makes networking chips for AI data center switches and routers. Switches and routers control the flow of information between different AI data center components. Tomahawk and Jericho are the company’s flagship networking chip families.

The exciting aspect of Curtis’s analysis is these networking chips. It is well known that Broadcom currently has three hyperscale customers and four potential ones for its ASIC business. These current and potential customers account for the seven that Curtis cites.

However, Curtis mentions that five of these hyperscalers are already networking customers. If Curtis is right, this information significantly boosts Broadcom’s overall upside.

To push shares to new highs, markets want to see Broadcom convert its potential ASIC customers to actual ones. The fact that Broadcom didn’t make an announcement like this last quarter is a large reason why shares sold off post-Q2 earnings.

Curtis’s analysis indicates that multiple of Broadcom’s potential ASIC customers are already networking customers. This existing relationship increases the likelihood that they will also become ASIC customers. Thus, the idea that Broadcom shares can move higher based on potential ASIC customer conversion is more likely to play out.

Tomahawk 6: Broadcom’s Unsung Growth Engine

The link between ASIC customer conversion and networking chips is particularly important now. This is because of the recent launch of Broadcom’s Tomahawk 6 networking chip. A Tomahawk 6 chip can facilitate the transfer of twice as much data as any other. This allows Broadcom to capitalize on a trend it is seeing in networking.

Data centers are increasingly shifting toward Broadcom’s Ethernet technology to support "scale-up" architecture. This is where servers become denser, packing more computing power into the same amount of space.

Tomahawk 6’s industry-leading bandwidth makes it ideally positioned to serve this need. Doubling the bandwidth means that users can connect twice the number of components to it without sacrificing performance. This allows for a denser server architecture (scale up), which is the exact opportunity that Broadcom is seeing.

Additionally, the prowess of Tomahawk 6 could increase Broadcom’s potential to cross-sell ASICs. In this way, Tomahawk 6 positions Broadcom to increase networking revenue and gain ASIC customers.

AVGO: $315 Is Far From Unrealistic

Curtis’s analysis points to one key fact: investors should not overlook the networking piece of Broadcom’s AI chip revenue. Networking chips accounted for 40% of total AI revenue last quarter. Sales of these chips grew by 170% last quarter, more than three times the 46% growth rate of total AI semiconductor revenue.

Importantly, this brisk growth rate came before Tomahawk 6 was even available. Overall, Broadcom has multiple avenues through which it can continue to grow impressively, whether it be ASICs, networking, or VMware. The company is clearly confident in its future. It spent over $4.2 billion on buybacks last quarter, the second-highest amount of quarterly repurchase spending in its history.

With leading tech and the chance to gain big new customers, Broadcom shares could hit $315.