After a tech-news outlet The Information reported on April 20 that Alphabet’s Google (GOOG) (GOOGL) was holding talks with Marvell (MRVL) about the latter firm creating new AI chips for GOOG, Broadcom (AVGO) stock fell 1.7% on the same day. AVGO currently designs AI chips for Google.
But Broadcom has multiple, other huge customers in the space, and the size of the AI-chip market is expected to soar in the coming quarters. Further, the valuation of AVGO stock is attractive, in light of its growth outlook, while an analyst with an excellent track record recently issued a very bullish note on AVGO stock.
Because of all of these points, investors looking for increased exposure to large chip makers should buy AVGO stock on the dip.
About Broadcom Stock
The California-based chip maker develops a wide variety of semiconductors and networking equipment. In the month that ended on April 20, the shares had jumped 29.5%, while they had soared 142% in the previous year. AVGO has a market capitalization of $1.89 trillion and a forward price-earnings ratio of 40.85 times.
AVGO Has a Gigantic Presence in the Booming AI Chip Market
Among the major consumers of Broadcom's AI server compute ASICs, in addition to GOOG are Microsoft (MSFT), Amazon (AMZN), and Meta (META).
These tech giants are utilizing ASIC chips on a wide scale to power machine learning, generative AI training, video processing, and algorithms. Recently, for example, Broadcom announced a “multi-gigawatt rollout” of AI chips within the framework of a long-term, multi-year partnership with Meta. These semiconductors will enable the social-media giant “to bring real-time generative AI features and ‘personal superintelligence” to its billions of customers, Broadcom reported.
The companies did not disclose the amount of revenue that AVGO will generate from the deal. But given the large size and ambitious goals of the partnership, AVGO will likely receive many billions of dollars from Meta in exchange for its assistance. Indeed, in 2025 alone, Broadcom obtained $2.3 billion from Facebook's owner.
Broadcom was expected to have a “60% share of the AI server compute ASIC design market by 2027,” Counterpoint Research stated in January. Moreover, “Global AI Server Compute ASIC server shipments for the top 10 players are set to triple between 2024 and 2027,” Counterpoint asserted.
Even if Broadcom's share of this very quickly expanding market slips to 40% or 50%, the chip maker's top and bottom lines are likely to keep growing quite rapidly.
Favorable Valuation and a Bullish Note by a Top Analyst
Analysts on average expect Broadcom's earnings per share to surge 76.7% during its current fiscal year, while the company's forward price-earnings ratio is 40.85 times. In light of the chip maker's tremendous, expected growth, its valuation is attractive. And even if its EPS increases “only” by 50% or 60% this year as a result of it losing business from GOOG, AVGO stock would still be quite cheap.
Meanwhile, Benchmark analyst Cody Acree recently maintained a $485 price target, along with a “Buy” rating, on AVGO stock. In the wake of the Meta deal, the analyst is more convinced that Broadcom will be able to generate much more than $100 billion of revenue from AI chips during its upcoming fiscal year.
On the date of publication, Larry Ramer had a position in: AMZN , AMZU . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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