Analysts revise Broadcom stock price targets after Q3 earnings

Broadcom shares fell in early trading on Friday after the network chipmaker posted a mixed set of quarterly earnings and a subdued near-term revenue forecast, which added to concerns that the AI ​​investment theme could slow in the last months of the year.

Broadcom (AVGO) one of the market’s top performers so far this year, has seen a huge surge in demand for its specialized networking chips, which has helped the group add more than $200 billion in value so far this year.

Chips play a key role in the development of AI systems, where big data models require a series of networks, connected by nodes, that determine the speed at which information gathered from one network is transmitted to another.

The group also makes what are known as ASIC chips, which help hyperscalers move large amounts of data through integrated circuits and ultimately accelerate the speed and reliability with which they process information.

The group’s role in investing in artificial intelligence, as well as the subdued earnings and outlook released last month by chipmaker Nvidia, put the spotlight on fiscal third-quarter earnings as investors sought to justify the broader sector’s lofty valuations.

Broadcom managed to post a modestly better-than-expected revenue balance sheet for the three months ended July of $13.1 billion, thanks in part to an increase in demand for its ASIC and AI chips, but failed to impress investors with his help almost. – the long-term perspective.

Broadcom CEO Hock Tan says the AI ​​investment theme is headed for another “upcycle that could even meet or even exceed what our previous cycles have been.”

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AI revenue was essentially flat from the previous quarter at $3.2 billion, but is likely to grow 10% in the current quarter due in part to continued demand from hyerscalers such as Meta Platforms. (THE TARGET) Alphabet parent Google (GOOGLE) and ByteDance, the owner of China’s TikTok.

Improving AI growth forecasts

Broadcom said it saw current quarter sales in the region of $14 billion, just missing forecasts, with a full-year total of about $51.5 billion, just ahead of the previous estimate of $51 billion.

Revenue from VMware, the cloud software group it acquired for $61 billion in 2022 and shuttered last year, is expected to hit a quarterly run rate of $4 billion.

“While the company’s report was solid with no material weaknesses, its AI business did lack the positive momentum the Street was looking for,” said Benchmark analyst Cody Acree, who reiterated his “buy” rating and $210 price target following last night’s gains. report.

“However, the company’s results showed steady progress in its AI business (and) overall, we thought Broadcom delivered a solid report and outlook with many fundamental strengths for which investors should be encouraged,” it added he.

Morgan Stanley analyst Joseph Moore said Broadcom’s AI growth, while not linear, remains strong, adding that the group’s current forecast suggests steady growth for the AI ​​products division.

Still, the analyst added $4 to his price target for Broadcom to $180 a share and kept his “overweight” rating in place after last night’s earnings report.

“We assumed there was conservatism in that and we had an estimate of $12 billion, but we highlighted in our preview that the company characterized the ASIC business as being nebulous from quarter to quarter,” Moore said.

“This mismatch played out as the company saw AI CPUs paid q/q – with AI networks slightly up,” he added. “But importantly, growth is still close to 3x this year and sequential growth resumes in October.”

Solid hyperscaler application

Canto Fitzgerald analyst CJ Muse, who reiterated his $200 price target and “overweight” rating on Broadcom, said AI’s earnings story remains compelling and the stock remains “one of the best AI plays on the market “.

“AI revenue continues to grow strongly, and with the improvement of customer expansion in custom chips (from Google to date Meta Platforms and Bytedance are accelerating) along with the growth of Ethernet networks very closely tied to future GPU sales, FY2025 should be another strong year for AI,” he added.

Goldman Sachs analyst Toshiya Hari was also bullish on the group’s longer-term outlook, saying the third-quarter figures and current-quarter forecast were a “hiccup”.

Hari, who raised his price target on Broadcom by $5 to $190 a share, cited the group’s “consistent” cash flow generation and its “robust” competitive position in the high-speed networking space .

JPMorgan analyst Harlan Sur also raised his price target on Broadcom, raising it by $10 to $210 per share, while maintaining an “overweight” rating.

More AI actions:

• An analyst revises price target on Microsoft shares after AI reporting change
• Analyst resets Nvidia stock price target ahead of earnings
• Analysts revise price targets on Palo Alto Networks shares after earnings

“AI is permeating all enterprises and digital natives, you have to upgrade your servers,” Broadcom CEO Hock Tan told analysts on a conference call late Thursday. “You need to upgrade your storage. You have to upgrade the network, the connectivity across the entire ecosystem.”

“Otherwise, we could be headed for the upcycle, the exact timing of which we’re not sure, but an upcycle that could even meet or even exceed what our previous cycles would be, simply because the amount of breadth of bandwidth that you need, to manage, store, manage all these workloads coming from AI we would just have to refresh and upgrade the hardware,” added Tan.

Broadcom shares were marked 7.9 percent lower in premarket trading to indicate an opening price of $140.75 each, a move that would cut the stock’s six-month gain to about 4.3 percent.

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