On Monday, Citi analysts, led by Christopher Danely, maintained their Buy rating and $220.00 price target for Broadcom Limited (NASDAQ:AVGO), despite potential regulatory headwinds. The analysts addressed concerns about recent reports suggesting the Biden Administration might impose further restrictions on AI chip exports to China.
Notably, Bytedance, identified as AVGO's third-largest ASIC customer, could be impacted by these restrictions, potentially affecting $2-$3 billion in fiscal year 2025 sales, equivalent to 3%-5% of the company's projected sales for the year. According to InvestingPro data, 20 analysts have recently revised their earnings expectations upward, with price targets ranging from $171.60 to $300.00, reflecting strong confidence in the company's prospects despite these challenges.
Despite the uncertainty surrounding government policies, Citi analysts remain optimistic about Broadcom's prospects. They acknowledge the difficulty in forecasting government actions but suggest that the overall growth in the AI sector could more than compensate for any potential loss of sales to Bytedance.
The analysts underscore their confidence in the strength of the AI business, which they expect to continue throughout the year. This optimism appears well-founded, as InvestingPro data shows impressive revenue growth of 44% over the last twelve months, with the company generating $51.57 billion in revenue and maintaining a robust 75.2% gross profit margin.
Broadcom's association with Bytedance is significant, given that the latter is a major customer with a substantial sales forecast for the upcoming fiscal year. However, the analysts at Citi believe that the breadth of the AI market and the demand across other segments can offset the risks associated with any single customer, even one as large as Bytedance.
The statement from Citi comes amid a broader discussion about the semiconductor industry and its exposure to international trade policies. The potential for increased regulation of chip exports to China has raised questions about the impact on companies heavily involved in the AI chip market.
Broadcom Limited, a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions, has been identified as a key player in the AI space. Citi's reiteration of their Buy rating on AVGO reflects a positive outlook on the company's ability to navigate the complexities of the market and capitalize on the growing demand for AI technologies.
In other recent news, Broadcom Inc. has issued $3 billion in senior notes and reported fiscal fourth-quarter 2024 earnings of $14.1 billion in revenues and earnings per share (EPS) of $1.42. The company also foresees revenues of $14.6 billion and an EBITDA margin of approximately 66% for the first quarter of fiscal year 2025. Analyst firms such as UBS, Bernstein SocGen Group, and Goldman Sachs (NYSE:GS) have expressed optimism about the company's prospects.
UBS has raised its price target for Broadcom shares, citing a positive outlook on the company's AI revenue streams. Bernstein SocGen Group maintained an Outperform rating on Broadcom, highlighting the company's potential AI revenue opportunity ranging from $60 billion to $90 billion by 2027.
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