Broadcom Stock Is Still a Buy, Citi Says. There’s More to the Growth Story Than AI.

Broadcom, the maker of artificial-intelligence chips, is set to report its fiscal third-quarter earnings on Sep. 4. (dreamstime)

Artificial intelligence has come under scrutiny as of late, but Broadcom has no shortage of cheerleaders.

Citi Research has become the latest firm to double down on its support for the chip maker. Analysts reiterated a Buy rating and $315 target price on Broadcom shares. The stock was up 1.1% at $297.45 on Tuesday.

The company is set to report fiscal third-quarter earnings after the closing bell on Sep. 4. Citi expects sales to come in above its own estimate of $15.8 billion, representing a sequential gain of 6%.

Broadcom’s guidance for fourth-quarter sales will likely also come in higher than the $17 billion Citi estimated, the analysts said, citing plans for higher capital spending at Meta Platform, Microsoft, and Alphabet.

Broadcom is deepening its ties to Meta , Alphabet’s Google, and ByteDance, the parent of TikTok, “and management expects each of these three customers to scale to about one million AI accelerator clusters by 2027,” the analyst wrote. Broadcom has previously disclosed its relationships with all three companies.

There’s more to the growth story, Citi argued. Analysts believe Broadcom has four more prospects including OpenAI, xAI, and Apple in the pipeline. Based on those relationships, the bank expects Broadcom’s AI sales to surge 60% to $19.5 billion in fiscal 2025 and another 37% to $26.7 billion the following year.

Citi’s main concern is that higher revenue linked to AI, which tends to offer lower margins, will weigh on Broadcom’s overall gross margins, but the analysts posited that improvement in other areas could offset that.

The bank sees room for Broadcom’s wireless segment to perform better than expected, as iPhones sales have come in stronger than anticipated. The company’s non-AI semiconductor business is also set for a recovery, Citi added. Revenue peaked at $6.5 billion in January 2023 and has failed to return to those levels, stabilizing at around $4 billion over the past two quarters.

The vote of confidence comes as investors question whether near-term expectations for AI are too lofty. Expensive tech stocks sold off last week, hammering the shares of AI-centric names like Palantir Technologies, which have been considered potentially overvalued.

Remarks from OpenAI CEO Sam Altman, who said investors were “overexcited” about AI, dragged on the sector, as did a recent MIT report concluding that 95% of organizations were getting “zero return” from generative AI.

Broadcom shares have gained 27% this year, buoyed by enthusiasm about AI. While the company’s fiscal second-quarter earnings narrowly outstripped the consensus call on Wall Street, the stock fell as management’s financial guidance came in roughly in line with expectations. CEO Hock Tan said he expected demand for Broadcom’s AI-specialized chips to accelerate in the second half of 2026.

Wall Street clearly remains positive. Among 45 analysts tracked by FactSet, 42 rate Broadcom at Buy or the equivalent. Just three rate the stock at Hold, while none make the case to sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com