Broadcom Defies Volatility: Why Wall Street Expects More Gains

Key Points

• Broadcom shares have been one of the stronger semiconductor performers in recent weeks. 
• The stock is trading close to all-time highs with a ton of bullish momentum. 
• Analysts have high expectations, with some calling for as much as 40% upside.  

After a volatile summer following a consistently upward first half of the year, Broadcom Inc. shares NASDAQ: AVGO are again on the verge of highs. In the past three weeks alone, they've jumped more than 30% and come within $4 of hitting June's record. 

It's a solid run of gains for Broadcom to be taking into Q4, especially as some of their semiconductor peers are still struggling to find their feet after this summer's volatility. Take Micron Inc NASDAQ: MU for example. Their stock lost 46% of its value from June through the start of last month, and while it's managed to tack on 20% from those lows, it's still a long way from its own record high. If anything, Micron could be at risk of forming a downtrend if it can't find some consistent upward momentum soon. 

This is also true of Advanced Micro Devices Inc NASDAQ: AMD, whose stock has been setting some worrying lower highs since its peak in March. Broadcom, however, can confidently say the uptrend that began almost two years ago is very much intact and, if anything, is on the verge of advancing. 

Broadcom Stock Rises as Wall Street Bets on Long-Term Growth

This is all despite the company offering lower-than-expected forward guidance in last month's earnings report. Against the $14.04 billion analysts had been forecasting for Q4 revenue, Broadcom's management expects it to land somewhere around $14.0 billion flat. Light guidance can often be the only reason Wall Street needs to start dumping a stock, and to be fair, Broadcom's shares did sell off hard the day after the report. 

But the fact that they've been gaining since then speaks volumes about their longer-term potential and how confident Wall Street is in it. Of course, the business smashed analyst expectations for its Q3 numbers, delivering year-on-year revenue growth north of 47%.

This kind of strong fundamental performance is worth noting, especially for those of us who are looking to freshen up our portfolios heading into the final few months of the year. Several analysts have already picked up on this. Jefferies' Blayne Curtis, for example, wrote in a note last month that Broadcom's "Guidance came in a bit lighter than expected, but management has been messaging lumpiness in AI revenue, and growth is set to reaccelerate in 4Q."

Analysts Reaffirm Broadcom’s Buy Rating With Bullish Price Targets

Curtis and the team at Jefferies took the opportunity to reiterate their Buy rating on the stock and their $205 price target. The team at Bank of America went one better, giving Broadcom a price target of $215. But it was the Rosenblatt Securities team that really raised eyebrows with their $240 target, targeting an upside of some 40% from where Broadcom closed on Monday evening. 

That's a seriously bullish stance to take, especially since the company has already gained more than 60% since the start of the year. It also lends itself to the theory that Broadcom could be one of the better options for investors keen to get fresh exposure to the semiconductor space.

Thinking of Taking a Position? Broadcom Shows Strong Potential

With the AI-fueled bubble having somewhat deflated, if not fully popped, in recent months, semiconductor stocks are being scrutinized closer than ever. Broadcom's bullish outperformance of analyst expectations in last month's earnings report, along with these super-bullish expectations from Wall Street analysts, suggests the stock is more than passing muster right now. 

Technically speaking, the run of higher lows that started last year is still intact, which indicates there are consistent buyers to be found whenever the stock dips. This was true in August and was true in September as well. The stock's MACD remains bullish, while its RSI is 58, which is also bullish without being anything close to too hot. 

Broadcom shares did indeed turn back last week from their most recent test of June's high. However, with the benchmark S&P 500 index having just closed at a record high, it likely won't be too long until they're testing them again.