Broadcom Isn’t In the Mag 7. But It’s Hotter Than Most Other Big Tech Stocks.

Broadcom shares have outperformed most of the Magnificent Seven stocks this year, but it isn’t part of the club. (Dreamstime)

The Magnificent Seven needs an upgrade. Broadcom should be a member of a so-called Exceptional or Great Eight.

The chip company’s shares are up nearly 30% this year. Nvidia , which has gained more than 30%, is the only Mag 7 stock that has done better.

But Broadcom, which is now valued at $1.4 trillion (more than another Mag 7 stock Tesla) and trading at a record high, may soon hit a speed bump. The stock looks expensive and even though Wall Street analysts adore it, their price targets suggest that shares have little more room to run in the near-term.

Broadcom is trading at 45 times earnings estimates for this fiscal year. That’s a five-year high and well above its historical average multiple of 22, which is in line with the broader market. Nvidia’s forward P/E, by way of comparison, is 41. Nvidia has typically traded at a big premium to the S&P 500, though. And for what it’s worth, the Roundhill Magnificent Seven exchange-traded fund is trading at 31 times earnings estimates for this year.

So Broadcom’s valuation is clearly looking a little rich. That might be a reason Wall Street analysts have been reluctant to boost their price targets. Shares are now trading around $300. But despite Buy ratings from 44 of the 49 analysts who cover Broadcom as tracked by FactSet, the consensus price target for the stock is only $298.

Earnings could be the next catalyst for Broadcom, but investors will have to wait a bit. Unlike most of the Mag 7, the company doesn’t operate on a calendar fiscal year. So its next earnings release won’t be until early September. (Microsoft and Meta Platforms report results Wednesday while Apple and Amazon are on tap for Thursday.)

Broadcom did report strong growth for its fiscal second quarter in May, with revenue up 20% and net income surging 44% from a year earlier. Analysts are expecting another blockbuster quarter ahead: consensus forecasts call for a 21% increase in sales and 34% jump in earnings per share. But one investment firm that owns the stock thinks Broadcom will live up to the hype.

“Though expectations are elevated, we believe the company can beat for the quarter,” said Jamie Meyers, research analyst at Laffer Tengler Investments, in an email. Meyers, who said Broadcom is his company’s largest semiconductor stock holding, thinks revenue from Broadcom’s artificial intelligence chips will grow more than 60% thanks to solid demand from Google owner Alphabet and other so-called hyperscalers.

Meyers joked that his firm refers to Broadcom as being the “poor man’s Nvidia.” The problem though is that Broadcom is no longer a poor man’s stock. Broadcom will need to hit (and probably exceed) Wall Street’s targets to justify its premium valuation.

Write to Paul R. La Monica at paul.lamonica@barrons.com