On Friday, Truist Securities adjusted its price target on shares of Broadcom Limited (NASDAQ:AVGO), bringing it down slightly to $204.00 from the previous target of $204.50. Despite this minor adjustment, Truist Securities maintained a Buy rating on the stock. The firm's decision comes amidst the recognition of the unpredictability and lumpiness of AI revenue growth, which is currently supported by only three announced customers.
Broadcom recently reported an upside in its second quarter results for July and provided guidance for the third quarter ending in October that suggests improvement, particularly in the Software segment. The company has experienced triple-digit growth in its AI semiconductor revenue, yet the performance remains inconsistent due to its concentrated ASIC revenue.
Investors had been anticipating the announcement of a new ASIC customer, which has not yet occurred. However, Truist Securities noted that improved software margins have led to an increase in their CY25 EPS estimate to $6.47, up from $6.39. The revised price target of $204 is based on a 31.5 times multiple, which represents a 10.5 times premium to the S&P, but is still considered inexpensive compared to AI industry peers.
Truist Securities suggests buying Broadcom shares for several reasons: the potential for AI growth, strong dividend momentum, and the benefits of mergers and acquisitions. Despite the slight decrease in the price target, the firm's outlook for Broadcom remains positive.
In other recent news, Broadcom Limited has been performing strongly in the artificial intelligence (AI) sector, with several analyst firms maintaining positive ratings. Rosenblatt and Benchmark both retained a Buy rating, with price targets of $240 and $210 respectively, highlighting gains from VMWare enterprise software and semi AI compute.
Morgan Stanley (NYSE:MS) maintained its Overweight rating, indicating robust AI growth despite variability in quarterly revenues. Mizuho also retained an Outperform rating, citing potential growth in AI revenue and a robust financial outlook.
Broadcom's third-quarter revenue exceeded expectations at $13.07 billion, marking a significant year-over-year revenue increase of 47% to $13.1 billion. The company's AI revenue forecast for FY24 has been increased from approximately $11 billion to $12 billion. Furthermore, Broadcom's VMware (NYSE:VMW) bookings are gaining momentum, with a $4 billion revenue target for the upcoming quarter, surpassing previous management expectations.
Broadcom is also making strides in software, particularly with VMware, achieving high software renewal rates and conversion/upsell to its VCF full stack solution. These recent developments underscore the company's ongoing potential and its ability to navigate through recent down-cycles.
InvestingPro Insights
In light of Truist Securities' updated price target on Broadcom Limited (NASDAQ:AVGO), current InvestingPro data reveals a robust financial profile for the company. Broadcom's market capitalization stands at an impressive $711.36 billion, reflecting its significant presence in the market. The company's revenue growth over the last twelve months as of Q3 2024 is reported at 32.04%, indicating a strong upward trajectory in its financial performance.
Two InvestingPro Tips that complement the analysis are that Broadcom has raised its dividend for 14 consecutive years and analysts anticipate sales growth in the current year. These insights underscore the company's commitment to shareholder returns and its positive sales outlook, aligning with the reasons Truist Securities suggests buying Broadcom shares. For investors looking to delve deeper, there are more than 10 additional InvestingPro Tips available, which provide a comprehensive view of Broadcom's investment potential.
Furthermore, the company's dividend yield as of late 2024 stands at 1.37%, with a notable dividend growth of 14.13% over the last twelve months leading up to Q3 2024, reinforcing its reputation as a reliable dividend payer. Broadcom's consistent dividend payments and anticipated sales growth present a compelling case for investors seeking both growth and income.
For those interested in a more detailed analysis, additional InvestingPro Tips can be found at https://www.investing.com/pro/AVGO, offering a deeper dive into Broadcom's valuation multiples and profitability forecasts.
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