This chip company has a 'multi-year $100-$125bn AI opportunity': BofA

Investing.com -- In a note Friday, Bank of America analysts highlighted Broadcom (NASDAQ:AVGO )'s promising position in the AI space, projecting a significant long-term opportunity. 

During a meeting with Broadcom’s CEO Hock Tan, CFO Kirsten Spears, and IR head Ji Yoo, BofA reaffirmed its Buy rating on the stock and raised its price target to $215, citing a “multi-year $100-$125bn AI opportunity.”

According to the BofA report, Broadcom’s AI opportunity is growing rapidly, with AI-related revenues expected to make up $12 billion or 24% of the company’s sales in FY24. 

The total addressable market (TAM) for Broadcom is projected to reach between $100-$125 billion, largely driven by internal workloads at top hyperscale customers. 

The bank said the customers are expected to deploy large clusters of custom chips, with estimates of 1 million XPU clusters over time.

BofA noted that Broadcom is well-positioned in AI, particularly in networking, which is projected to grow from 15-20% of AI spending to 20-25% in the coming years.

"Connecting XPUs captures a larger part of the pie," the analysts explained, adding that Broadcom is also working on co-packaged optics, though deployment is still a few years away.

In addition to AI, the bank highlighted Broadcom's software division, particularly VMWare, which is transitioning to a subscription model. 

They explained that VMWare is expected to contribute significantly to Broadcom's long-term growth, with an estimated 5-10% compound annual growth rate (CAGR).

Overall, BofA views Broadcom as a top pick, alongside Nvidia (NASDAQ:NVDA ) and KLA, emphasizing its strong combination of AI compute, networking, recurring software, and consistent cash returns through dividends.

 

Source: Investing.com