New Price Target for Broadcom as 'Massive Opportunity' in AI Drives Breakout
The semiconductor firm received a major catalyst after Thursday's closing bell and might face a "perfect storm" for a major run.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Broadcom AVGO has been a solid winner for investors. As of Thursday's close, the San Jose, California-based semiconductor and infrastructure company has gained 66% year to date, and 472% over the past five years.
However, the stock has been quiet recently. Broadcom reached an all-time high of $185.95 on October 9, but since then, the stock hadn’t been able to move past that level.
A closer look at the chart reveals the reason for the stock’s malaise: Broadcom has been quietly consolidating its gains. Over the past three months, the chip designer formed a bullish ascending triangle pattern (black dotted lines). Based on the size and scope of that pattern, Broadcom has the potential to reach $240.
Broadcom just needs a catalyst to get to the next level. That catalyst arrived after Thursday’s closing bell.
After Thursday’s close, the company reported fourth quarter earnings of $1.42 per share, slightly ahead of analysts’ expectations. Revenues came in slightly below expectations, and the company raised its dividend by 11.3%.
Then Broadcom officials began to discuss "a massive opportunity in AI chips" over the next three years. While the company expects demand for non-AI chips to decline in the current quarter, growth in AI semiconductor chips will more than offset that loss.
Broadcom CEO Hock Tan stated, “We currently have three hyperscale customers who have developed their own multi-generational AI roadmap… In 2027, we believe each of them plans to deploy one million XPU clusters across a single fabric… To compound this, we have been selected by two additional hyperscalers.”
These comments launched the stock into the stratosphere. Broadcom climbed as high as $210 in post-market trading, a gain of 16% from the stock’s closing price.
This could be a perfect storm. Broadcom is breaking out of a massive bullish pattern, due to developments in the AI sector, in the midst of a runaway bull market, during one of the best times of the year to own stocks. Conditions are ripe for Broadcom to make a run well beyond its technical target of $240.
Could Broadcom’s bright outlook lift the entire semiconductor industry? I wouldn’t count on it.
According to the charts, the Philadelphia Semiconductor Index (SOX) is trapped within a symmetrical triangle pattern (black dotted lines). This pattern consists of both higher lows and lower highs, which means there is no directional bias. On Thursday, the SOX closed below its 50-day (blue) and 200-day (red) moving averages.
While Broadcom is unlikely to change the fortunes of the semiconductor sector, it is very likely to resume its bullish trend. That trend, which paused for a three-month consolidation, is now back in play as the stock reaches a fresh all-time high.
At the time of publication, Ponsi was long AVGO.
