Broadcom Stock Is Down 35% From Its Peak as AI Bubble Warnings Rise, but Analysts Stay Optimistic

Broadcom (NASDAQ:AVGO) is stuck in a bear market after falling 35% from its all-time high. The stock ended the week at $328, its lowest level since April 8, and its market value has shrunk from $2.29 trillion to $1.57 trillion. Despite the sell-off, top analysts remain optimistic, pointing to attractive valuation multiples and the company’s strong position in the AI space.

Broadcom Has Fallen Amid the AI Bubble Fears

Broadcom and other top companies in the AI space have dropped this month as jitters surrounding the sector escalate. Nvidia (NASDAQ:NVDA), the biggest name in the space, has dropped by 12% from its peak. Notably, the Roundhill Memory ETF (CBOE: DRAM), which tracks the biggest names in the memory space, has dropped by 43% from its peak, with its outflows continuing. 

Broadcom is highly exposed to the AI space. For example, it has a $100 billion deal with OpenAI, the AI pioneer whose revenue growth has fallen short of expectations. The two firms have created Jalapeno, a chip that OpenAI believes performs better than those that Nvidia makes. 

Broadcom also has major deals with companies including Alphabet, Anthropic, and Meta Platforms. Its agreement with Alphabet covers the custom Tensor Processing Units (TPUs) that Google is prioritizing for its AI workloads.

Broadcom’s latest results showed that its AI semiconductor business generated more than $10.8 billion in revenue in the second quarter, up 143% from a year earlier. The company expects that segment to grow 200% in the third quarter to over $16 billion. 

Broadcom tends to guide conservatively, so actual revenue could come in higher. That growth also leaves the company heavily exposed if the AI bubble bursts, investors believe.

Analysts are Bullish on Broadcom Stock

Top analysts tracking Broadcom have a bullish outlook for the company. Benzinga data shows that all of these analysts have a buy rating, with the average target being $569, up by 20% from the current level. The most optimistic analyst is from BNP Paribas, which expects it to jump to $715. Citic Securities has a target of $525, while Jefferies see it hitting $550. 

The bullish case for Broadcom is that its revenue growth is expected to continue growing. For example, the average estimate is that its third-quarter revenue will come in at $34 billion, up by 93% from a year earlier. For the year, revenue is expected to grow by 65% to $105 billion, followed by 64% next year. 

Analysts also cite its valuation, with the forward price-to-earnings ratio being 28.2, slightly higher than the technology sector median of 21. By adding its revenue growth and profit margin, the company has a rule-of-40 metric of 92%.

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