Why Broadcom Stock More Than Doubled in 2024

This technology giant's critical role in the AI movement is becoming clearer every day.

Many investors seeking growth opportunities in the technology sector may not immediately consider Broadcom (AVGO -2.18%). However, they might want to rethink that decision. Shares of this company saw a stunning increase of 108% last year, catching many off guard. This remarkable rise wasn't merely a response to a poor 2023, as the stock also experienced nearly double its value the previous year.

So, what is driving this growth? Broadcom is becoming increasingly essential in the booming artificial intelligence (AI) landscape.

The planets are aligning for Broadcom's business

While Nvidia (NVDA -3.00%) has gained significant recognition as a leader in the AI revolution, Broadcom is also making vital contributions. Nvidia's processors power most AI data centers, but as the demand for faster data processing continues to grow, data center operators are looking for additional technologies to enhance their operations.

This is where Broadcom comes into play. The company manufactures crucial technology that connects hard drives to motherboards, links various computers in server stacks, and even provides the fiber-optic technologies necessary for efficient AI data centers. This segment has become a significant driver of Broadcom's growth, evidenced by a phenomenal 44% year-over-year revenue increase, accompanied by a staggering 220% rise in sales to AI clients.

Looking forward, Broadcom's CEO, Hock Tan, recently pointed out that the annual AI chip market could expand from its current size of $15 billion to $20 billion up to a potential $60 billion to $90 billion by 2027. To put this into context, Broadcom generated $12.2 billion in AI business for itself during its recently concluded fiscal year.

The market has begun to recognize these trends well before the bold prediction made in December, understanding that the coming phases of the AI revolution will prominently involve Broadcom's offerings.

Be patient, but not stubborn

After experiencing two phenomenal years, is Broadcom stock a viable buy right now?

Concerns about overvaluation do exist. Although the stock price is currently below analysts' consensus target of $247.54, the potential for further upside seems limited compared to the current stock price. Moreover, the recent jump of 44% might make the shares susceptible to short-term profit-taking. Taking a more patient approach and waiting for a significant pullback before entering the stock could be wise.

However, it's important not to wait too long or to be excessively cautious. Two-thirds of analysts still rate Broadcom as a strong buy, despite its impressive gains. The underlying growth potential remains vast and seemingly inevitable, ensuring that Broadcom will continue playing a crucial role in the AI market.

Broadcom, AI, Stocks