On Wednesday, Barclays (LON:BARC) initiated coverage on Broadcom Limited (NASDAQ:AVGO), assigning the stock an Overweight rating and setting a price target of $1,405. The firm highlighted Broadcom's position as a top player in the data center silicon market, which is expected to benefit from the second wave of artificial intelligence (AI) advancements.
Broadcom's entry into Barclays' preferred names for the year is partly due to its strong data center silicon portfolio. While the semiconductor industry faces cyclical downturns, Broadcom's expanding software business is seen as a key factor in enhancing the company's profitability and free cash flow (FCF) generation.
The focus on AI is particularly crucial at this time, with Barclays projecting a mid to high-20% growth range for the next year. This growth is anticipated to accelerate over the long term, driven by the company's custom silicon and switching businesses. Barclays' price target is based on a sum-of-the-parts valuation, applying a 22x price-to-earnings (P/E) multiple on projected 2025 earnings.
The analyst at Barclays noted that, despite the broader semiconductor industry's cyclical challenges, AI stands out as the most significant driver of growth in the near term. The company's custom silicon and switching segments are expected to contribute substantially to this growth trajectory.
Barclays sees the potential for Broadcom's stock to outperform, particularly if AI-related expenditures accelerate faster than anticipated. The firm's valuation model and price target reflect confidence in Broadcom's future performance, especially as it capitalizes on the burgeoning AI market.
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