“From value to growth stock”: BofA raises price target for Broadcom By Investing.com

Bank of America analysts have raised their price target for Broadcom (NASDAQ:) shares from $2,000 to $2,150, citing the company’s “transition from a value stock to a growth stock driven by growing contributions to AI and VMWare.”

In the past, AVGO’s traditional semiconductor and software segments grew at a normal 5% to 10% growth rate. Bank of America now expects growth to double to a compound annual growth rate (CAGR) of 13% from 2024 to 2026, “led by a 24% CAGR in AI silicon and VMWare, which could soon account for more than half of revenue.”

“In our view, AVGO’s diverse growth drivers, highly respected management team and unique track record of capital appreciation, dividend growth and above-market dividend yield can justify a premium multiple,” analysts said in a note.

“Despite AVGO being the eighth-largest stock in the S&P 500, institutional ownership of AVGO remains well below market weight, according to Bank of America’s strategy team,” they added.

Broadcom’s free cash flow (FCF) of 43% ranks just behind Nvidia (NASDAQ:) in the semiconductor sector. The company is also an industry leader with a combination of 15% annual dividend growth and an above-market dividend yield of 1.25%.

Bank of America said potential risks to its bullish thesis include potential shifts in sentiment in the AI ​​space, as well as customer concentration, increasing competition from NVDA and the company’s high net debt of $60 billion.