On September 9, firm analyst David O'Connor initiated coverage on the stock with an Overweight rating and a $460 price target. O'Connor estimates demand running twice the available supply for Broadcom, which makes the ability to deliver chips central to his thesis. Even though the chipmaker boasts demand, component availability and deployment timing will determine its conversion into earnings.
The biggest advantage that Broadcom holds is that it doesn't need to win new customers, but to keep expanding what it ships to the ones it already has. The company is already ramping Meta's MTIA program and OpenAI's Jalapeno chips, along with two other customers. Google's TPU program remains Broadcom's major volume ASIC program, while Anthropic is also scaling deployments using AVGO-enabled TPU compute.
Broadcom also boasts a rising networking attach rate, which is currently around 30%. This would likely generate an estimated $20-30 billion of total content per gigawatt of deployed capacity. The firm has a line of sight to 12 gigawatts of demand in fiscal 2027, rising toward an estimated 38 gigawatts by fiscal 2030.
This underpins a roughly 51% EPS compound growth rate through the decade. If the said trajectory materializes, Broadcom Inc. (NASDAQ:AVGO) would have an AI opportunity underpinned by higher accelerator volumes, additional customers, and also greater networking content. Piper's bullish thesis also serves as its largest execution risk.
While Piper estimates that demand is currently running twice the supply, it means that Broadcom's growth ceiling for the next few years will likely be determined by its own and its partners' ability to add capacity. If Broadcom fails to cater to demand, unserved demand will obviously eat into its potential revenues. This is why it needs to have access to additional manufacturing and supporting infrastructure before the demand mentioned in Piper's forecasts can reach the income statement.
Moreover, the company's custom AI chip business also faces key risks such as eroding pricing power, customer concentration, and lower relative gross margins. Broadcom stands the cheapest in Piper's AI universe. Its $460 price target is based on a 14x multiple of estimated fiscal 2028 earnings.
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