RBC Initiates Broadcom (AVGO) at Sector Perform, Flags Margin and Valuation Risks Despite AI Upside

Broadcom Inc. (NASDAQ:AVGO) is one of the AI Stocks Making Waves on Wall Street. On January 14, RBC Capital analyst Srini Pajjuri initiated coverage on the stock with a Sector Perform rating and a price target of $370. He flagged margin and valuation concerns for AVGO, but also sees upside potential in artificial intelligence.

Analyst Srini Pajjuri pointed out three key debates surrounding the stock: gross margin impact from artificial intelligence growth, sustainability of Anthropic’s ramp-ups, and the magnitude and timing of potential OpenAI opportunities.

He noted that he sees upside potential to 2026 estimates stemming from robust demand at Google/Meta. Moreover, Anthropic’s TPU racks are anticipated to be a major driver in the second half of 2026, even though the racks come with lower margins, and the sustainability of Anthropic’s demand beyond the first half of 2027 also remains unclear.

Due to Broadcom’s multiple commitments, the firm is also taking a conservative view on OpenAI contribution in 2027.

“Valuation is at ~25% premium to NVDA, which we think makes risk/reward less compelling. Initiate at Sector Perform."

Broadcom is a technology company uniquely positioned for the AI revolution, thanks to its custom chip offerings and networking assets.

While we acknowledge the potential of AVGO as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.