Broadcom: DA Davidson upgrades AVGO, says Anthropic S-1 shows AI cycle isn’t over

 DA Davidson upgraded Broadcom to Buy from Neutral and raised its price target for the stock to $400 from $350 in a note Tuesday, saying Anthropic’s IPO filing suggests the AI cycle is not over yet.

Analyst Gil Luria said his reading of Anthropic’s S-1 leads him to believe the IPO will proceed and the company will raise its capital. 

He expects that to pave the way for OpenAI to raise more capital through its own IPO next year, allowing Broadcom to meet its expectations for the next couple of years.

“At the current 16x multiple on 2027 EPS, AVGO is trading as if the chances of that happening are near zero, which creates significant upside if those deals both materialize,” Luria wrote.

Part of the overhang on Broadcom has been concern that its growth depends on Anthropic and OpenAI, which are set to become its largest custom chip customers. Market skepticism about both companies has risen significantly in recent weeks.

The analyst noted that the S-1 discloses $131 billion of cash and equivalents at Anthropic, as well as the $161 billion scale of its relationship with Broadcom. He said Anthropic’s roughly 50% gross margins on net revenue are healthy enough to justify its growth.

DA Davidson also highlighted a dislocation between Nvidia, Micron and Broadcom, which trade at 5 to 16 times 2027 EPS, and the rest of the AI semiconductor complex, which trades at 20 to 40 times.

“Said otherwise, there is unlikely to be a world in which several semis companies do well while NVDA, MU and AVGO struggle,” the analyst said.