The AI boom is not over: Citi recommended buying shares of partner Meta, Google and Apple

Analysts at investment bank Citi Research have reiterated their recommendation to buy shares of chip and chip maker Broadcom, despite the market's growing view that the AI boom is waning. Citi expects the semiconductor company's revenue from AI chips to grow 60% in fiscal 2025 and another 37% in 2026.

Citi analyst Christopher Danely reiterated his recommendation to buy shares of chipmaker Broadcom and their target price at $315. This implies a potential upside of 6% relative to the closing level of trading on August 26. The investment bank continues to consider Broadcom as a beneficiary of the AI boom.

Citi updated its outlook on the company's securities ahead of its fiscal 2025 third-quarter report, which will be released after the close of trading on Sept. 4.

On Tuesday, Broadcom securities rose 1.3% to $298. Their value has increased by 27% since the beginning of the year.

The investment bank expects the company's revenue last quarter to exceed its estimates of $15.8 billion, which would mean growth of 6%. In addition, the analyst believes that Broadcom's forecast for the fourth quarter will exceed Citi's estimate of $17 bln due to increased capex from Meta, Microsoft and Alphabet.

Broadcom is strengthening its partnership with Meta, Google and China's ByteDance, which owns TikTok, according to Citi. "Management expects each of these three customers to scale their AI chip clusters to approximately one million units by 2027," the bank said in a note cited by Barron's. Broadcom has previously publicly confirmed partnerships with all three companies, the publication notes.

Citi also notes that Broadcom has at least four other potential customers in the pipeline, including OpenAI, xAI and Apple. Against this backdrop, the bank expects the company's revenue from AI chip shipments to grow by 60% to $19.5 billion in fiscal 2025 and by another 37% to $26.7 billion in 2026.

The main risk, according to Citi, is that Broadcom's AI business has lower margins than other business segments, and growth in such revenue could worsen overall profitability. However, the analyst believes that this will be offset by improvements in other areas. For example, the wireless division of Broadcom, which supplies modems to Apple, may show results above expectations, as iPhone sales are better than expected. The non-AI semiconductor segment is also expected to recover: its revenue peaked at $6.5 billion in the quarter ending January 2023, and has not been able to return to that level since, stabilizing at around $4 billion.

Doubts are growing among investors about the prospects for AI, Barron's notes. Highly valued technology stocks fell sharply last week, including AI-focused companies such as Palantir. The market was further pressured by remarks from OpenAI CEO Sam Altman, who said investors are "overexcited" about AI, as well as an MIT study showing that 95% of companies are still getting "zero return" from generative AI models.

According to Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, "the skepticism about AI that previously supported mega-corporation growth has returned to the market," Barron's wrote.

UBS analyst Timothy Arcuri on Aug. 25 revised his target price on Broadcom shares from $290 to $345, reiterating a buy recommendation on the stock.

Susquehanna Investment Company on August 26 raised the target even higher, from $300 to $350, also maintaining a buy recommendation on them.

In total, of the 45 analysts who track the chipmaker's momentum, 42 recommend its shares to buy, three advise to hold, and none suggest selling, Barron's cites FactSet data. Meanwhile, the Wall Street consensus price target is just 3% higher than the current price target, according to MarketWatch.

This article was AI-translated and verified by a human editor