Broadcom's AI Dominance Fuels a $289.60 Target: Is This the Growth Play of the Decade?

The tech sector's latest darling isn't a flashy startup—it's Broadcom Inc. (AVGO), a company now synonymous with the AI revolution. With its Q2 FY2025 earnings underscoring a 20% year-over-year revenue surge to $15 billion, Broadcom has positioned itself at the epicenter of two booming markets: AI semiconductors and cloud infrastructure software. Analysts are now pricing in a 17.28% upside to a $289.60 average target, with some even eyeing $340—a call that hinges on whether Broadcom can sustain its AI momentum indefinitely.

The AI Semiconductor Surge: A Nine-Quarter Winning Streak

Broadcom's AI semiconductor division is the star here, posting $4.4 billion in Q2 revenue—a 46% YoY jump—marking its ninth consecutive quarter of growth. The secret? Its Tomahawk 6 switches, capable of 102.4 terabits per second throughput, which are enabling hyperscalers to build AI clusters spanning over 100,000 accelerators. This hardware isn't just fast—it's critical for the scalability of large language models and other AI workloads.

But the story isn't just about chips. Broadcom's XPU processors, designed for AI training and inference, are seeing tremendous demand, with management projecting AI semiconductor revenue to hit $5.1 billion in Q3—a 60% YoY rise. Analysts at Rosenblatt Securities, noting this trajectory, recently upgraded AVGO to “Strong Buy” with a $340 price target, arguing that AI spending is now a “decade-long tailwind.”

The Software Play: VMware's Cloud Foundation Takes Off

While semiconductors grab headlines, Broadcom's infrastructure software division (driven by VMware) is equally compelling. Q2 revenue here hit $6.6 billion, up 25% YoY, as enterprises adopt VMware's Cloud Foundation (VCF). Over 87% of the top 10,000 global enterprises now use VCF, fueling double-digit growth in annual recurring revenue (ARR). This shift to subscription models is transforming Broadcom into a $6.4 billion free cash flow machine, even as it tackles $67.8 billion in debt.

The software story isn't just about VMware, though. Broadcom's broadband and enterprise networking tools are stabilizing after a rough patch, while its service storage solutions are gaining traction. Together, these segments are proving that Broadcom isn't just an AI chipmaker—it's a full-stack infrastructure leader.

Analyst Consensus: Strong Buy, but at What Price?

The Strong Buy consensus (based on 20 analyst ratings) isn't blind to risks. Broadcom's non-AI semiconductor divisions remain weak, and regulatory hurdles—like U.S. export controls—could crimp shipments. Yet, bulls argue these are short-term speed bumps. The average $289.60 price target reflects a P/E multiple of 32x forward earnings, a premium to peers.

But is it justified? Consider this: Broadcom's AI revenue could hit $30 billion by FY2026, per management's guidance, with margins expanding as software (93% gross margin) and AI (higher content per chip) dominate. Even with a 130 basis point sequential dip in Q3 gross margins due to product mix shifts, the long-term picture remains bullish.

The Bottom Line: Buy the AI Leader, Despite the Price

At its May 30 closing price of $242.07, AVGO is already up 16% year-to-date. Yet, with a $289.60 average target, the math suggests investors aren't overpaying for growth. The $340 Rosenblatt target—if achievable—would imply a 40% premium, but that's only if AI adoption accelerates beyond expectations.

The risks are real, but so is the opportunity. Broadcom's blend of hardware-software synergy, $6.4 billion in annual free cash flow, and 9-straight quarters of AI growth make it a rare “buy-and-hold” name in a volatile market. For investors seeking exposure to AI's infrastructure boom, AVGO isn't just a play—it's a necessity.

Investment Thesis:
- Buy for long-term growth exposure to AI semiconductors and enterprise software.
- Hold if you're wary of valuation or regulatory risks.
- Avoid only if you believe AI's hype will fade—Broadcom's data suggests otherwise.

In a sector where hype often outpaces reality, Broadcom is delivering the goods. The question isn't whether AVGO is overvalued—it's whether you can afford to miss its next act.