Broadcom: Shares Now Look Fairly Valued With Our Higher Valuation Based on Generative AI Forecast

We raised our fair value estimate for wide-moat Broadcom to $1,350 per share, from $1,090, as we raise our long-term growth assumptions to factor in a greater generative AI opportunity for the firm. We continue to view Broadcom as a diversified investment with both semiconductor and software exposure. Within semiconductors, we increasingly view AI as a driver of growth, and forecast it to approach half of overall chip sales over the next five years. We retain our positive views of the firm’s other chip businesses, and its software portfolio, inclusive of VMware. We believe Broadcom’s ability to manage various differentiated businesses and generate tremendous profitability from each underpins a wide economic moat. We like its diversified growth opportunity, but view AI as the fastest grower over our medium-term forecast. While we’ve previously been bearish on Broadcom’s valuation, we now see the shares as fairly valued. Investors eager to play into AI may see an opportunity here, though we continue to see AI as a minority of total firm sales against other chip and software businesses.