Why Broadcom Stock Rallied on Monday
Shares of Broadcom (NASDAQ: AVGO) surged higher today to kick off the week, jumping as much as 4.9%. As of 11:51 a.m. ET on Monday, the stock was still up 3.67%.
The catalyst that sent the artificial intelligence (AI) specialist higher was growing bullishness on Wall Street ahead of its high-profile stock split.
A lot to like
Last week, Broadcom released robust financial results and announced a stock split that caught Wall Street off guard. The strength of the company's results had analysts scrambling to update their price targets, further fueling the stock's rise. That trend continued this week as more analysts joined the party.
Baird analyst Tristan Gerra maintained an outperform (buy) rating on the stock while increasing his price target to $1,950, up from $1,500. That represents 12% upside compared to the stock's closing price on Friday, even after its 19% gains last week. The analyst noted a 40% increase in the company's forecast for networking revenue and guidance for $11 billion for AI revenue.
Deutsche Bank analyst Ross Seymore raised his price target on Broadcom to $1,900 while maintaining a buy rating. He cited the company's "solid second quarter beat" fueled by robust gains in AI and strong progress in integrating VMware into the fold.
The stock-split boost
The biggest factor fueling excitement surrounding Broadcom is the company's upcoming 10-for-1 stock split, scheduled for next month.
Several high-profile stocks have split their shares this year, driving their prices higher. The most notable example is Nvidia, which recently completed its own 10-for-1 split. Since its announcement on May 22, Nvidia stock has gained 39%, and investors are hoping for similar gains from Broadcom.
It's important to remember that there's no guarantee that investors will place the same premium on Broadcom as they did on Nvidia. Furthermore, a stock split is merely cosmetic, changing nothing about the underlying company.
That said, investor psychology comes into play, and it was the strength of the underlying business that propelled the shares to new heights, necessitating the split in the first place.
Broadcom is currently trading for 36 times forward earnings, and while that's certainly not cheap, it's reasonable considering the company's place in the AI revolution.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Why Broadcom Stock Rallied on Monday was originally published by The Motley Fool