Broadcom Analysts Highlight Long-Term Potential: 'High-Quality AI Franchise' Could Provide Upside In 2025

Analysts see long-term strength for Broadcom Inc AVGO after the company reported quarterly financial results.

The Broadcom Analysts:

• Bank of America analyst Vivek Arya reiterated a Buy rating with a $215 price target.
• KeyBanc analyst John Vinh maintained an Overweight rating with a $210 price target.
• Cantor Fitzgerald analyst C.J. Muse reiterated an Overweight rating with a $200 price target.
• Benchmark analyst Cody Acree reiterated an Overweight rating with a $200 price target.
• Goldman Sachs analyst Toshiya Hari reiterated a Buy rating and raised the price target from $185 to $190.

Check out other analyst stock ratings.

Bank of America: The company has a "high-quality AI franchise" that could provide multiple "upside levers" in fiscal 2025, Arya said in a new investor note.

Called a top compute pick by the analyst, Broadcom has increased its outlook for AI, showed solid VMWare sales and progress on gross margins.

"Overall we continue to see AVGO as a high-quality tale of transformation, from a mid-single digit growth to a mid-teens growth company driven by shift to growthier AI and VMWare segments, with potential for legacy recovery," Arya said.

VMWare's growth is now powered by subscription conversions with 70% of bookings subscription-based, up from 30% at the time Broadcom acquired the company in November 2023.

KeyBanc: AI and VMWare strength helped offset other Broadcom segment weakness in the quarter, Vinh said.

"In semis, AVGO saw strength in AI accelerators, which grew +350% y/y given contributions not only from Google's TPU but also shipments to 2 additional customers (est ByteDance/META)," Vinh said.

Broadcom is positioned for "above-industry growth,” the analyst added. “We believe Broadcom's strong track record of successful acquisitions will provide a meaningful diversification opportunity and LT growth stability given that the smartphone market continues to saturate at the high end."

Cantor Fitzgerald: While the AI outlook was raised, guidance was disappointing for Muse.

"While Broadcom raised its AI revenue outlook as expected for all of FY24 (to $12B from $11B), management only raised its FY24 revenue outlook to $51.5B resulting in a modest miss for the October Q guide," Muse said.

Investors should be encouraged by Broadcom's report with strong AI revenue growth and improvements for other business segments, with the latter being a future catalyst.

"We believe it is only a matter of time before these businesses push higher driving another leg of topline growth as well as accretion to Semiconductor gross margins,” Muse added.

Benchmark: The earnings report didn't show clear upside but was solid, Acree said in a new investor note.

"Following a week of incredibly poor performance in Nvidia's stock price and most AI related names, Broadcom's report was being looked to as some sort of savior of the AI momentum trade, with investors hoping that a strong upside and guide would renew investor confidence in the group," Acree said.

Investors got a small beat and guidance that was shy of consensus estimates, the analyst said.

"Its AI business lacked the clear upside momentum the Street was looking for."

Acree said the company's AI business showed "steady progress."

The analyst was impressed by the company's VMWare business and the stabilization of non-AI semiconductor revenue in the quarter.

Broadcom displayed “many points of fundamental strength for investors to be encouraged by,” Acree added.

Goldman Sachs: The company's AI Semiconductor business could be a "near-term hiccup," Hari writes.

The long-term thesis on the stock centers on a strong position in high-speed networking, strong margins, consistent free-cash-flow generation and a willingness to return capital to shareholders.

"In the near-term, post this quarter's hiccup, we envision a re-acceleration in the AI semiconductor business coupled with a cyclical recovery in the non-AI revenue stream putting the company back on a beat and raise cadence," Hari said.

AVGO Price Action: Broadcom shares are down about 9.4% to $138.49 on Friday versus a 52-week trading range of $79.51 to $185.16. Broadcom stock is up 26% year-to-date in 2024.

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