Analysts at Bank of America increased their price target for Broadcom (NASDAQ: AVGO) shares to $2,150, highlighting the company’s shift towards growth driven by AI and VMware. Traditionally, AVGO’s software and semiconductor segments saw 5-10% growth, but Bank of America now predicts a compound annual growth rate (CAGR) of 13% from 2024 to 2026, primarily due to a 24% CAGR in AI and VMware sales.
The analysts praised AVGO’s diversified growth drivers, strong management team, and historical track record of capital appreciation and dividend growth. Despite being the eighth largest stock in the S&P 500, AVGO has lower institutional ownership compared to the market, according to Bank of America’s strategy team.
Broadcom ranks second in the semiconductor sector with a 43% free cash flow (FCF) and boasts annual dividend growth of 15% with a dividend yield of 1.25%, outperforming the market. However, potential risks to Bank of America’s positive outlook include changes in sentiment towards AI, customer concentration, competition from Nvidia (NVDA), and AVGO’s sizeable $60 billion net debt.
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