Broadcom Stock Split Update: Up 3% Since June, History Says AI Stock Will Do More

Since 1980, companies have seen an average stock price appreciation of 25.4% during the year following a stock split announcement, according to Bank of America. We can apply that statistic to Broadcom (AVGO -2.92%) to make an educated guess about his future performance.

Specifically, Broadcom announced a 10-for-1 stock split after the market closed on June 12. Its share price is up 3% since the market opened the next day, leaving an implied upside of about 22% through June 2025.

Of course, past performance is never a guarantee of future returns. Whether Broadcom shares trade higher or lower in the coming months depends on the company’s financial results and how investors value the stock. So let’s take a closer look at what Broadcom is doing and what Wall Street expects from the company. Here’s what investors should know.

Broadcom is a leader in network chips and custom silicon

Broadcom divides its businesses into two segments: Semiconductor Solutions and Infrastructure Software. The company derives semiconductor revenue from several end markets, including wireless devices, data center networking equipment and storage systems. Broadcom also designs application-specific integrated circuits (ASICs), a term that refers to custom silicon, such as custom artificial intelligence (AI) accelerators.

Broadcom also derives software revenue from several end markets, including cybersecurity and mainframe software. The former includes solutions for endpoint, network, and identity security, and the latter includes solutions for observability, data management, and workflow automation. In addition, Broadcom’s recent acquisition of VMware added virtualization software to its portfolio.

Broadcom is a leader in several markets, including ASICs and network chips, as well as mainframe and virtualization software. But its strong presence in certain semiconductor verticals is particularly relevant, as demand for AI infrastructure should be a major catalyst. For example, JPMorgan Analysts estimate that Broadcom has an 80% share of Ethernet switching chips, and expect that market to expand to 20% to 30% annually over the next few years.

In addition, Broadcom dominates the high-end ASIC market with a 55% to 60% market share, according to Barron’s. The company helped AlphabetGoogle has been developing custom machine learning chips called Tensor Processing Units (TPUs) since 2013 and has helped Meta platforms build custom AI chips called Meta Training and Inference Accelerators (MTIA) from 2020.

However, sales of custom AI chips should grow faster in the coming quarters, as Broadcom recently won three new customers. One is still unknown, but JPMorgan analysts identified the others as TikTok parent ByteDance and OpenAI. This bodes well for the company and its shareholders. Sales of AI accelerators are expected to grow 29% annually through 2030, according to Grand View Research.

As a caveat, Broadcom has a strong presence in several fast-growing markets such as AI chips and virtualization software, but it also competes in several slow-growth markets with its non-AI chips and software for mainframe. As a result, Broadcom is growing more slowly than other AI chipmakers. Total revenue rose 47% in the most recent quarter, but that figure drops to 4% if VMware’s contribution is excluded.

Broadcom shares are trading at a reasonable valuation

Wall Street is generally bullish on Broadcom. The stock has an average price target of $195 per share, which implies a 13% upside from the current share price of $172. Goldman Sachs analysts recently wrote: “Besides Nvidiawe see Broadcom as a critical piece to the ongoing AI infrastructure development.” Bank of America analysts echoed that sentiment, adding that Broadcom could sell VMware to enterprise customers running AI workloads.

Going forward, Wall Street expects Broadcom’s earnings to grow 22% annually through 2025. That makes its current valuation of 38 times earnings look about right. Broadcom is a good choice for patient investors looking for a reasonably priced semiconductor stock that should benefit as demand for AI infrastructure increases in the coming years. As always, it would be prudent to start with a small position and build it over time.