Broadcom (NASDAQ:AVGO) was in the spotlight on Wednesday as investment firm Daiwa Securities upgraded the semiconductor and software firm to Buy, citing its strong position in artificial intelligence. 

Shares rose 2.5% in afternoon trading.

"We see four strong drivers for Broadcom here in 2025, and going forward into the future," analyst Louis Miscioscia wrote in a note to clients. "With the shares down 33% from recent December 2024 high, and at a valuation of 22x FY26 EPS, we find the shares attractive at these levels." Miscioscia raised his rating on Broadcom to Buy from Outperform, but lowered his price target to $225 from $275.

The four drivers that Broadcom has going for it include its application specific integrated circuit / XPU business, as Miscioscia pointed out it has gone from three core customers to seven. "The reason is that ASIC processors can be lower cost as they are designed specifically for training or inference and pull less power," Miscioscia added. "It is these benefits that Google, Meta, ByteDance, OpenAI/others are signing up."

Its networking business also stands to benefit from AI, as all of the AI factories will need to be connected, and Broadcom's status in Ethernet is strong, Miscioscia explained. He also pointed to the VMware acquisition, as it should continue to "provide growth, margins and cash flow," and the coming rebound in the broader semiconductor market.

Potential negatives include tariffs, the upcoming AI Diffusion Rule and the possibility that the AI market takes a downturn.

"Even with all this, as we wrote, we believe Broadcom shares sell off is overdone, and the company is well positioned for the future," Miscioscia wrote.