Stock market volatility returned over the summer, but after a brief respite, the widely followed S&P 500 index is hitting new highs again. As the stock market moves higher, Wall Street analysts are making bullish calls on Broadcom (NASDAQ: AVGO) and Advanced Micro Devices (NASDAQ: AMD). Here’s why these growth tech stocks are poised for a rebound.
1. Broadcom
Broadcom shares are inching closer to new highs after a recent dip. The company is experiencing strong demand for its artificial intelligence (AI) semiconductor solutions, which enable data centers to move data, an increasingly important feature for AI training. But William Blair analyst Sebastien Naji sees more upside for investors as Broadcom’s non-AI business recovers.
Broadcom reported strong growth last quarter, driven by AI-related products and the inclusion of VMware, which the company acquired in 2023. Analysts expect revenue to be up 44% to $51 billion this year, with AI products contributing $12 billion to the top line based on management’s guidance.
However, Broadcom’s non-AI revenue is recovering from a downturn. The company sells products into several markets, including smartphones and broadband, which have experienced weak demand. The good news is that non-AI networking revenue grew 17% sequentially over the previous quarter, and management also sees demand growing for its non-AI chip business, which signals a bottom for these businesses.
A rebound in these markets would be huge for Broadcom investors. The company could be firing on all cylinders by this time next year. Analysts expect revenue and earnings to be up 17% and 28%, respectively, in fiscal 2025. This explains why the analyst has an outperform rating on the shares.
The stock’s forward price-to-earnings (P/E) ratio is 28 based on next year’s consensus earnings estimate, which seems very reasonable for a business that is expected to grow earnings at an annualized rate of 19% over the next several years. Investors should expect Broadcom shares to hit new highs over the next year and beyond.
2. Advanced Micro Devices
If Broadcom stock looks appealing, AMD shares could perform even better. AMD stock trades at almost the same forward P/E but analysts are projecting even higher earnings growth for this top chip company.
Nvidia controls the lion’s share of the market for graphics processing units (GPUs), which are required for AI workloads, but AMD is second and that positions it well for growth. Strong demand for AMD’s MI300 GPUs helped drive a 115% year-over-year increase in data center revenue last quarter.
However, Edward Jones analyst Logan Purk believes investors are overlooking the company’s opportunity with Xilinx, which AMD acquired in 2022. Xilinx is a leading supplier of programmable and adaptive chips, which extends the company’s opportunities in cloud, edge computing, and intelligent devices.
The addressable market across all these segments is estimated at $135 billion, but Purk doesn’t believe investors are giving AMD credit for this growth potential, especially since Xilinx is contributing high-margin revenue to AMD’s business.
Investors can buy AMD stock at an attractive forward P/E of 30 based on 2025 earnings estimates. That is a modest valuation compared to analysts’ forecast calling for 41% annualized earnings growth in the coming years. For this reason, AMD stock is a great buy on the dip. As AMD reports strong earnings results in the next few quarters, the stock should climb back to new highs.
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John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The S&P 500 Is Rebounding: 2 Tech Stocks to Buy Now, According to These Wall Street Analysts was originally published by The Motley Fool
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