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Broadcom is the next stock that could enter the trillion-dollar club, according to Bank of America

Broadcom
Reuters
  • Broadcom could be the next stock to reach a trillion-dollar market cap, Bank of America said.

  • The chipmaker's stock is surging after its quarterly earnings beat estimates.

  • Strong sales, a debt paydown, and lucrative acquisitions should keep up the firm's momentum, BofA said.

Chip maker Broadcom looks like a contender to be the next member of the stock market's trillion-dollar club, Bank of America said Thursday.

Investors cheered the semiconductor manufacturer in Thursday trades after it posted estimate-beating earnings and announced a 10-to-1 stock split. Shares soared, hitting an all-time high of $1,696 around 11 a.m. ET.

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Bank of America thinks Broadcom has even greater potential even after its big quarterly report. In a note published Thursday, analysts upgraded the firm's price target to $2,000, indicating about 18% upside from current levels.

"We reiterate Buy, consider it a top AI pick (with NVDA) as AVGO appears uniquely positioned to grow in: 1) custom AI chips (complement to NVDA merchant accelerators), 2) Ethernet networking (levered to exponentially growing AI clusters), and 3) VMware upsell (enables enterprise to deploy on-premise AI)," the bank said.

Broadcom is among a cohort of semiconductor manufacturers that have been buoyed up by the artificial intelligence frenzy, as their chips are used to power the underlying software. $3.1 billion in sales during the fiscal year's second quarter were tied to AI products, it said.

Strong sales outlooks also helped Broadcom surge on Thursday, as it forecast $51 billion in sales this fiscal year, slightly above consensus.

Bank of America sees this momentum continuing. For fiscal year 2025, it raised its sales forecasts to $59.9 billion, or a 16% increase year-over-year. Upside drivers will be semiconductor sales and Broadcom's VMWare, a software firm it acquired last year.

"Second, we note AVGO's debt paydown ($8bn+ annual) that could create more room for further M&A next year. Third, the double digit FCF growth in FY24 could enable another 10% dividend raise towards the end of the FY," analysts wrote.

If Bank of America's price target pans out, that would place Broadcom among an exclusive group of stocks with trillion-dollar market capitalization. The club's latest member is Nvidia, the semiconductor leader that was catapulted into sky-high valuations, thanks to its central role in the AI wave.

Nvidia has broken out to soar even higher in recent months, joining Microsoft and Apple at the $3 trillion mark.

Read the original article on Business Insider