Broadcom’s (AVGO) AI Role Acknowledged, But Valuation Concerns Remain

Broadcom Limited (NASDAQ:AVGO) is one of the AI Stocks to Watch. One global technology firm with a robust structural AI opportunity ahead is Broadcom. On February 12, DA Davidson analyst Gil Luria initiated coverage on Broadcom Limited (NASDAQ:AVGO) with a Neutral rating and a price target of $335.

While analysts acknowledge AVGO’s structural AI opportunity, they believe long-term customer behavior could cap upside. The firm, in particular, expressed concerns about the long-term sustainability of Broadcom’s position in the AI application-specific integrated circuit (ASIC) market. This is despite these components gaining growing importance in the market.

While AI ASICs have been becoming increasingly important for labs and hyperscalers that pursue workload-specific accelerators, analysts believe significant headwinds exist for suppliers like Broadcom.

The relevance of the AI ASIC has grown increasingly more important as labs/hyperscalers pursue more workload-specific accelerators. And while we respect the role of design partners in bringing these programs to volume, we see a potential path for the largest of customers to internalize more of the stack in the next few years, pressuring supplier economics. Under this assumption, we do not believe Broadcom’s AI ASIC exposure warrants a premium multiple versus market leaders such as NVIDIA, and initiate coverage with a NEUTRAL rating and $335 price target.

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Broadcom is a technology company uniquely positioned for the AI revolution, thanks to its custom chip offerings and networking assets.

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Disclosure: None. This article is originally published at Insider Monkey.