«One of the must-have AI stocks»: should you invest in Broadcom ahead of the report?

Wall Street analysts expect chipmaker Broadcom's financial results for last quarter to beat expectations. The company will release the report after the markets close on June 5. Wall Street's consensus forecast calls for its earnings per share to reach $1.57 on revenue of $14.96 billion, reports Barron's, citing FactSet data. By comparison, in the same quarter a year ago, Broadcom had $1.1 earnings per share on revenue of $12.49 billion. Investors are waiting for the report to answer the question about demand for AI chips: if it has grown, it could support the shares of one of the main beneficiaries of the AI boom - Nvidia.

- Broadcom is capable of beating market expectations thanks to continued demand for AI, according to Citi analyst Christopher Danely. Ahead of the report, he raised his target price on the company's shares to $275 from $210, up 5% from the close on June 4. The analyst also reiterated a buy recommendation on the chipmaker's securities. Danely estimates that the AI division will generate up to 30% of the company's revenue in the current fiscal year. But the rest of Broadcom's semiconductor business, which also generates about a third of its revenue, should not be overlooked. That segment is now down about 40% from its highs, but Danely expects it to start recovering.

- Cantor Fitzgerald analyst C.J. Mewes also believes that Broadcom will show results above Wall Street's expectations and improve its outlook. He recommends buying the company's securities and before the report raised its target price by $50 to $300, which implies a 15% upside. According to Mewes, investors' main focus in the report will be on demand for custom chips and the launch of new TPU chips (v6 and v7p) that Broadcom is developing on behalf of Alphabet.

Although the AI chip market is dominated by Nvidia with its GPUs, Broadcom makes specialized chips (ASICs) for large tech companies, and that segment is growing strongly, notes MarketWatch. Mewes emphasizes that growth in the AI space is the main driver for Broadcom stock and predicts strong momentum for it in the second half of the year. That's when he expects average order value to rise. Google, according to the analyst, will accelerate the release of chips Broadcom, in addition, he predicts the launch of a product for Meta. Now Broadcom has only three large customers for custom chips, but the company mentioned that it is negotiating with four more.

- If Broadcom's report shows growth in the AI chip market, it could support both the company's stock and Nvidia's, notes Barron's. While the companies aren't competing on all fronts, both are vying for a stake in AI data center infrastructure, the publication adds. So far, the data is encouraging, says UBS Global Wealth Management Chief Investment Officer Mark Hefele: «New entrants into the AI market are ramping up spending: capital expenditures are estimated to grow by more than 80 percent this year and another 50 percent in 2026.»  

- On Tuesday, JPMorgan analyst Harlan Suhr reiterated an Overweight rating (above market) for Broadcom shares and maintained a $250 target price. «Broadcom remains our favorite in the semiconductor sector due to its strong involvement in AI infrastructure,» Suhr said. He sees solid fundamental drivers for the company's growth in the AI segment, as well as the positive impact of its software business.

- Melius Research analysts named Broadcom as one of the «must-have» AI stocks in the portfolio, as well as a leader among network infrastructure chip vendors without their own manufacturing facilities. Melius estimates that about a third of the company's AI revenue comes from its network switch business, and they expect this area to grow. An additional plus, according to analysts, in the long term remains the revenue from Vmware's cloud platform.

In trading on June 5, the value of Broadcom's shares rose by almost 1.5%. Since the beginning of the year, the market capitalization of the company has increased by more than 14%.

A day before the release of the quarterly report - June 4 - Broadcom quotes reached a new all-time high of $265.4. That came after the company announced that it had begun shipping a «breakthrough» version of its networking chips for data centers. The new chip, Broadcom says, has the power equivalent to six previous models and costs $20k apiece - twice the price of its predecessor. 

Now the vast majority of analysts - 39 out of 44 - whose estimates consistently tracked MarketWatch advise to buy Broadcom shares. And there have been more such recommendations in the past three months. Still, the Wall Street consensus price target of $252 a share is 3.5% below the last close.