Why Broadcom Stock Edged Higher on Friday

Key Points

• The prominent chipmaker earned a 5% price target raise from an analyst.

• He feels it'll do very well with its products aimed at the artificial intelligence (AI) segment.

• 10 stocks we like better than Broadcom ›

Chip company Broadcom (NASDAQ: AVGO) finished the trading week on a high, with its share price closing the day with a 1.5% gain. A price target raise from an analyst tracking the stock played a large part in that improvement. The company's rise essentially matched that of the S&P 500 (SNPINDEX: ^GSPC).

A new song from the Piper

That price target bump came from Piper Sandler's Harsh Kumar, who changed his fair-value assessment on Broadcom stock to $315 per share from the preceding $300. Kumar remains a Broadcom bull, as he maintained his overweight (i.e., buy) recommendation on the shares.

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Image source: Getty Images.

The company is at the forefront of the artificial intelligence (AI) revolution, and has done well supplying this segment with its custom chips. According to reports, the analyst wrote in his latest update that the heavy demand for AI-suitable components will power the company's growth. He's currently modeling 60% year-over-year growth for Broadcom's key semiconductor business in the current quarter.

On a slightly less positive note, its non-AI business is anticipated to be somewhat stagnant, although on the brink of a potential recovery.

Is AI a business bust?

Another factor in Broadcom's Friday rise is the reconsideration of a worrying report on enterprise AI published Wednesday. This came from the Massachusetts Institute of Technology (MIT), which found that nearly all the businesses it analyzed were getting no tangible returns on their AI investments, despite the excitement around the technology.

Technological advancements can only reach their potential when their users operate them properly. Since AI is relatively new to the general population, businesses could be in a phase when they are learning how to best leverage the new functionalities, and to pass along that knowledge to their workforce.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.