On Friday, Broadcom Limited (NASDAQ:AVGO) maintained its Buy rating and $210.00 price target according to Benchmark. The company reported a modest beat for the July quarter but issued guidance slightly below consensus estimates.
The results were solid, although the AI business did not demonstrate the strong momentum anticipated by investors. This led to a more than $10 drop in Broadcom's share price after hours.
Broadcom's AI revenue forecast for FY24 has been increased from approximately $11 billion to $12 billion, with Q4 AI revenue projected at about $3.5 billion, up from an estimated $3.15 billion in the July quarter. The Q3 AI revenue was approximately flat sequentially, attributed to variable order patterns from its largest AI customer, Google (NASDAQ:GOOGL).
In contrast, the company's VMware (NYSE:VMW) business saw aggressive growth in Q3, surging over 40% sequentially. The Annualized Bookings Value for this segment reached $2.5 billion, marking a 32% sequential increase. Broadcom also indicated that its non-AI semiconductor revenue has stabilized, with bookings rising 20% sequentially, suggesting a rebound in sectors that have recently faced a significant cyclical downturn.
Despite the lack of expected momentum in Broadcom's AI segment, the company's overall performance and outlook were deemed solid, with several fundamental strengths highlighted. Benchmark's analysis suggests that the current share price volatility presents an opportunity for investors to engage with a company at the forefront of the industry's AI adoption. The firm maintains its Buy rating and price target, which is based on 29 times their new FY26 EPS estimate of $7.23.
In other recent news, Broadcom Limited has been experiencing robust growth in its artificial intelligence (AI) segment, with Morgan Stanley (NYSE:MS), Mizuho, Bernstein SocGen Group, Cantor Fitzgerald, and JPMorgan (NYSE:JPM) all maintaining positive ratings and increasing price targets.
The AI revenue is projected to triple year-over-year to more than $12 billion in fiscal year 2024. 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.
Broadcom's VMware bookings are gaining momentum, with a $4 billion revenue target for the upcoming quarter, surpassing previous management expectations. Analyst firms such as JPMorgan, Piper Sandler, and Cantor Fitzgerald have expressed confidence in Broadcom's strategic positioning, with JPMorgan increasing its price target from $200 to $210.
Broadcom's financial outlook is robust, with industry-leading gross margins (GM) and operating margins (OM) forecasted at 76% and 59% for fiscal year 2024. Free cash flow (FCF) is projected to potentially grow to approximately $21 billion in fiscal year 2025.
Broadcom has also made significant strides in software, particularly with VMware, achieving high software renewal rates and conversion/upsell to its VCF full stack solution.
InvestingPro Insights
Broadcom Limited (NASDAQ:AVGO) continues to showcase its strength in the semiconductor industry. With a robust market capitalization of $711.36 billion, the company's financials reflect its significant presence in the market. The InvestingPro Data points to a notable revenue growth over the last twelve months as of Q3 2024, with an increase of 32.04%, emphasizing the company's expanding operations. Additionally, the Operating Income Margin during the same period stands at a healthy 34.41%, underscoring the company's efficiency in managing its operations profitably.
Investors may find the company's commitment to shareholder returns particularly reassuring; one of the InvestingPro Tips highlights that Broadcom has not only maintained but also raised its dividend for 15 consecutive years. This is a testament to its stable financial position and a signal of confidence in its future performance. Moreover, analysts are optimistic about the company's sales growth in the current year, which aligns with the aggressive growth seen in its VMware business and the stabilization of its non-AI semiconductor revenue.
For those interested in a deeper analysis, InvestingPro offers additional insights, including a total of 14 tips that provide a more comprehensive look at Broadcom's investment potential. Notably, Broadcom is trading at a high earnings multiple, which suggests that the market has high expectations for its future earnings growth. For a more detailed investment analysis, visit https://www.investing.com/pro/AVGO to explore the full range of InvestingPro Tips and metrics.
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